Home Tips

The presence of and potential for housing bubbles vary from city to city – sometimes even neighborhood to neighborhood – and are subject to a number of influencing factors, from zoning standards to the supply of new units. To detect a bubble, prospective buyers should look for homes that sit on the market longer because sellers do not want to lower asking prices. They also should be put on alert by areas where lenders go to great lengths to generate interest in buying, such as by offering interest-only loans. This type of financing does not accumulate equity in the early years. However, a drop in housing prices could leave the borrower owing more on the property than it is worth.

If a housing market appears to be overheating, real estate experts advise buyers to avoid a luxury purchase since high-end markets historically have been subject to greater price volatility. Regardless, they should search for a residence where they will be happy living for awhile, in case they need to ride out an unfavorable cycle of years of price declines.