Today's
home shoppers are walking a thin line between savvy
purchases and those that are not so well thought-out. Buyers
who take the plunge now and see the market drop may have to
wait years for the value of their property to catch up with
the price that they paid for it. Those who put off a buying
decision, meanwhile, ultimately could be priced out of many
markets if appreciation continues its tear.
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.
It is especially important,
meanwhile, to avoid communities where the local economy is
strongly dependent on a single industry as well as
neighborhoods where zoning regulations or geographic
constraints limit the volume of new units entering the
market. These markets tend to be more volatile.
