The Real Estate Bubble Fallacy

There has been a lot of talk lately about the "Real
Estate Bubble", and a lot of folks are asking the question: "When it is going
to burst"?
They are saying that the market just can't sustain this
level of growth and appreciation much longer,
and I heat them say that it is
inevitable that it must come crashing down soon. People are worried. They
don't think it can last; That whatever goes up, must come down.
These folks have
been conditioned to believe what they believe
most likely from the experience of the stock market
bubble of 2000, and maybe the 1990's when the real
estate market was hit hard in many
large metropolitan areas across the country.
Its human nature to feel this way. We all know the
saying (or the 80's tune for you big hair folks), "Once Bitten, Twice
Shy". Or
what about, "All good things must come to an end."? Its how we react to
almost everything that affects our well being and general safety. Its a
subconscious reaction at the gut level.

Just like in the stock
market, there are bulls and bears. Bulls are typically more optimistic about
the market and expect it go up, and bears are generally more pessimistic and
expect the market to go down. They will always be there to provide free
advice and "expert consulting". Remember though, who you decide to listen to
will certainly have an effect on your decision making, and ultimately your
success.
Well, I'm here
to say that there is no real estate bubble!
There never was a real estate bubble. Its a complete and utter fallacy.
"How can I say that?"
you ask. I can say that because the real estate
market is in reality, a Wave. Its a cycle, and we just happen to be
riding the big swells, or the crest of this
long, consistent, and fairly predictable pattern.
There is no doubt that
real estate has been a rock solid investment for decades,
and will continue to be for the foreseeable
future and for many reasons
that I would like to demonstrate here
and now. Because you, as a real
estate investor, must
be able to move forward with
confidence when deciding which
projects and properties you want to buy and sell.

But first, what is a bubble? In terms of economics and
markets, the best definition is probably something along the lines of "an
isolated or ephemeral situation or
condition with little support or substantiation from external conditions".
The best example, and the one foremost in the minds of us
all, is the stock market tech bubble of 1999 and 2000. We all rushed into the
tech stocks and the stock market in general as we saw the .com millionaires
being made.
Y2K was a big factor in the tech bubble. People were
buying new systems at a unprecedented rate in order to prepare for doomsday.
People were also buying consumable goods to stock up for the dreadful event
that never came.

So what was holding up, or supporting the "irrational
exuberance" as Alan Greenspan characterized it? Well, we learned soon
afterward, not much. It was an isolated,
temporary incident that had little support from the other conditions.
It was indeed like a bubble that burst.
And it has had little support since then. Historically
speaking, after the stock market crash of 1929 and 1987, it took decades for
the market to recover, although it did
eventually recover. Just look at the Dow average and the S&P average for the
last hundred years and see the pattern of
recovery. You can be sure that a
slow steady rise for stocks is in progress.
Now back to real estate. Let me explain why this is not
a bubble.
Real Estate is Cyclic
Real estate has had its ups and downs over the years, but it is generally
stable, with no drastic swings per
se. If you were to look at the cycles on a chart you would see a clear
pattern of gently rolling swells. This pattern is consistent across cities
and regions all across the United states, although slightly varied in
degree.
In addition, the
cycles tend to favor the ups rather than the downs. It is not uncommon to see
large cycles of appreciation and much smaller downward cycles. In other words,
the current double-digit growth we've all come to know and love in recent
years will likely be followed by downturns of single digit declines. Its like
taking two steps forward and one step back.
In the big picture you
will still be further ahead than when you started. You may see slower
growth, but it will still be growth.

Real Estate is a Basic Necessity
People need to live somewhere. They need a roof over their head and their
children's heads. Like food and clothing we must have a home. People don't
need stocks or bonds. Therefore,
you can be sure that whether the market is high or low in growth, whether
interest rates are up or down, people will be buying, renting, leasing,
and selling homes. It is as perennial as the
years.

This Real
Estate Wave Has Been Around Awhile
I don't know when you first realized we were in an up market in real
estate, but it has been on a solid upward trend for at least the last 3-4
years. It didn't just happen yesterday. Of course like anything else,
awareness of the general public is a bit latent, and dependant upon the media.
It has only been lately that the media has really focused on it and thrust it
onto the front page.
The old adage "Success
breeds success" is also true. The momentum will grow as other more traditional
investors continue to jump on the band wagon and pour their money and
resources into real estate investment. It tends to create a perpetual,
self-feeding market that is ideal for more seasoned investors.

Real Estate is Local and Regional
It is true that even in today's real estate boom, there are areas in the
United States that are not enjoying the high rates of return that others are
experiencing. California is a fantastic place to invest, so
is Arizona and a host of other places.But the Rust Belt states are not
as fortunate. Watch what happens to Florida home values after this horrendous
hurricane season. This is because real estate is driven by the primary
capitalistic force of Supply and Demand.
Generally speaking, property values increase in areas
where the job market is strong, and where
there are more people moving into than away from. Of
course there are other factors to consider; including interest rates,
availability of funding, climate, and governmental policies. These are all
important and you must be cognizant of their impacts to your strategy.
However, it is
true no that matter what the rates are
or how nice the climate is, people
will continue to migrate where there are abundant job markets and affordable
housing. If you can stay just slightly ahead
of that migration, you will profit immensely.

Real Estate Investing is Diverse
You can invest in so many different ways, from foreclosures and fix and
flips, to buy and hold and everything in between. Right now the commercial
space is relatively soft. It will recover no doubt, but people investing in
single family homes are probably doing slightly better in returns. Vacancies
are up and rents are down for commercial properties, but
fortunately, the forecast is for this sector to improve over the next
few years.
The key to successful real estate investing is to
understand the forces, trends, and
conditions that are driving the market. BE AWARE of your surroundings;
Read articles and stay on top of industry
news; Look in your own area at
the job market and forecasts.
There is no real estate bubble, but there is a real
estate wave. Like any dedicated surfer, when the surf's up, get in the water
and catch a wave! But
watch for danger, be flexible, and be
smart. Invest wisely and you can prosper in any real estate market.