One of the reasons people shy away from real estate is the fear of a potential real estate ‘bubble.’ These same people buy stocks, knowing the volatility of them, and say, ‘Buy stocks and hold on to them for the long-term.’ We do not believe the ‘bubble’ theory in real estate has any merit. Even if there was a ‘bubble,’ we would consider it a great buying opportunity and we would market that much harder!
Don’t get us wrong. There are times when the real estate market may ‘cool off,’ and property doesn’t appreciate in one year as much as it did in a previous year. There may be certain areas where prices even flatten out, but this is a far cry from a ‘bubble.’ Also, there are certain markets that witness extremely high appreciation for a number of years, such as Las Vegas or San Francisco, and may actually experience a small decline because they simply can’t keep up with the pace. But unlike the stock market, you can’t base what may happen in real estate on a national scale just by evaluating a few local economies. Whereas stocks are based on the national (or even the world) economy, the real estate market is based on local (or even micro-local) economies. There really isn’t a ‘national’ real estate market where one can predict what will happen across the board.
The term ‘bubble’ traditionally implies an artificially inflated valuation that is likely to ‘burst,’ such as the dot.com bubble we experienced in 2000-2001. Before the ‘pop,’ those stock prices weren’t based on intrinsic value, but on mere speculation of future potential values.
Real estate will always have inherent value because someone can live in it. Would you move if your neighborhood went down 10% in value? Probably not. But compare that to the stock market where millions of investors can sell off their stocks in moments by clicking their mouse.
So while it is possible that a local real estate market can reach a peak and flatten out, this doesn’t mean it is collapsing, which is what the media tends to portray. Maybe the real estate values in your city have appreciated 20% or so for the past few years, but this year it is projected at only 10%. We are led to believe that the bottom is falling out, even though 10% is still great! In this scenario, we see headlines stating, ‘Average Real Estate Prices Falling,’ and we question the validity of real estate investing. We can’t give in to those manipulative and deceptive tactics!
Buy real estate and rest in the fact that you won’t lose, if you buy it correctly. Your real estate will be around five, ten, and thirty years from now. Will that company you invested in be around in that period of time? Maybe – maybe not. With the numerous recent corporate failures and buy-outs, the chances are fairly large your company will no longer exist. Amber Sea