You hear it asked on the radio, in the newspapers and on TV.
"Are we experiencing a value bubble in real estate and is it
ready to burst?"
Do you have an answer for that question? Do you have a guess?
Yes, I know the so called experts are lining up on both sides of the question. But what about you? You're living right in the middle of the action. You can judge what's happening in your city - your neighborhood.
Are property owners going to be safe or sorry?
To help you form an opinion of the current state of the real estate market we have created the. . .
GREAT REAL ESTATE BUBBLE QUIZ. . .
Everyone gets a passing grade and no homework is required, so put your thinking cap on and jump in. . .
True False Question
_ _ Boston Real Estate values are up 90% in the last six years?
_ _ San Francisco real estate values are up 90% in the last six years?
_ _ Denver real estate values are up 90% in the last six years?
_ _ The price of the average home in New York was $50,000 in 1975 and is $325,000 today. . a gain of 550%?
_ _ The average home price in Los Angeles was $50,000 in 1975. After a gain of 500% it sells today for $300,000?
_ _ A 6,000 sq ft home in Greenwich, CT. worth $500,000 in 1987 sells today for $4-million?
_ _ Fannie Mae, the largest buyer of mortgages in the US, issued a report warning that the probability of a housing bust has risen sharply in certain parts of the country.
I bet you scored 100% and earned your “Doctorate of Bubblology".
OK, why is Fannie Mae so glum? They point to loose (We would say CRAZY) lending practices, like interest only loans and the increase in loan approvals that are not backed by full documentation of the borrower's income and assets.
We imagine a borrower's conversation with a lender today goes something like this:
Borrower: “Will you give me a quarter of a million
dollar mortgage loan. "
Lender: “Can you pay it back?"
Borrower: “Probably. "
Lender: “Loan approved!"
Now you may be thinking that skyrocketing values are in an isolated number of big cities, right? That's true, but those cities are our major commerce centers. When things go bad there the negative effect ripples across the country.
Here's the bottom line: Our economy is always blowing bubbles. Some burst and some don't.
Only time will tell about this one.
Mark Walters is an investor-entrepreneur helping other investors from his Web pages at http://www.Lease-Option-Sub2.com