The Housing Bubble: Real Estate Nightmare or Auction Opportunity

The Housing Bubble: Real Estate Nightmare or Auction Opportunity

A housing bubble is when property valuations increase rapidly and in a speculative manner until they reach levels that are disproportionate to incomes and other local economic factors, followed by decreases which cause property owners to have a mortgage debt higher than the value of the property. Often, housing bubbles are difficult to forecast but easy to identify in hindsight.

According to The Economist, “NEVER before have real house prices risen so fast, for so long, in so many countries.” They go further to say that the boom has been fueled by low interest rates and a loss of faith in stocks which made property an attractive investment. Just this year alone, the average home price has increased 12.5% with prices in some areas soaring as much as 20%.

Another indicator that housing prices are over-valued is that housing prices increase faster than the cost of rentals. According to The Economist, housing prices in America would have to be flat for 12 years with rental rates rising by 2.5% per year in order for rents to catch up with housing prices. It is more likely that there will be a correction in the value of homes. One of the results of a housing bubble is that housing sales go flat.

A recent article in the Baltimore Sun presents an excellent summation of what happens in a flat market:

“In some areas along the East and West coasts and in Florida, the number of homes listed for sale has more than doubled from a year ago and prices are eroding. With so much to choose from, buyers are no longer in any hurry; many believe prices will fall further if they wait a few months.”

Buyers are waiting for prices to come down and sellers are trying to get the most value for their property before it erodes away due to decreased interest and demand.

If traditional listings do not generate interest, what is the seller to do?

One solution would be to offer the property at a real estate auction.According to the Baltimore Sun Article, this is exactly what Florida Resident did, achieving what he felt was the fair market value for his property. Simply put, the targeted exposure from a real estate auction campaign brought interested bidders and the hammer price for the auction reflected the fair market value for the property.

For more information on real estate auctions, Please contact the Broker Auction Team or Dennis@BrokerAuctionTeam.com