A Sobering Reminder to Avoid Another Housing Bubble
The “Greater Fool Theory” ran the housing bubble up to its demise in 2008. This theory is based on the idea that it doesn’t matter how much you pay for a house, because there’s a “greater fool” who will pay more for it sometime in the near future. Many critics are asking, “Are we heading into another housing bubble?”
It was very sobering for me to see a chart showing the housing price appreciation between the years of 1998 to 2006. This chart, compiled from data from Zillow.com, showed the U.S. States with the highest rates of housing price appreciation during those years. After looking at these numbers, I can see how easy it may have been for real estate professionals to get caught up in the madness of those years. (Click on the photo/chart to see an enlarged view).
More important, seeing this chart was a reminder as we go into 2014 to avoid speculative investments and look for real value investments. The old saying in real estate, ‘you make money when you buy, not when you sell,’ is a good way to avoid being the “greater fool.”
Short sales proved to be a viable route for homeowners to get out of underwater mortgages. But in some U.S. Cities where housing values have bounced back quickly, many short sales that were in waiting for approval have fizzled out in recent months on the bank side. With prices rising so rapidly in some U.S. Cities, why would a bank need to ‘sell short’ an underwater mortgage that is no longer underwater?
What is your opinion on this topic? Please comment below after clicking on the chart and taking a closer look. It was certainly a good reminder for me.