What causes the real estate market to boom or bust, other than interest rates

I will agains the grain on this answer & here is the reason why:

Following is an article I wrotte back in November 2005 & this still stands:

(FYI: Speculators GET OUT!! Real true investors/homeowners THERE MIGHT BE SOMETHING HERE!!)

REAL ESTATE MARKET BUBBLE BURST!!!???

Well, we’ve heard so much from so many different “experts” but we ask how many print media columnists does it take to create a Real Estate market bubble? They really can’t but they can sure create fear on the consumer of a bursting housing bubble.

Most media r always looking for ways to increase circulation, which would equal to profits therefore any story suggesting a bursting bubble is going to attract readers. Not that they write this articles for the sole purpose of inducing fear on the consumer but don’t let media stories convince u that a bubble will burst or even worst become a self fulfilling prophecy.

Ultimately, the consumer is the one that dictates if there will be a bubble burst in the Real Estate market.

Three important facts that guide property values are:

Supply vs. Demand: If supply of housing is greater than the demand, housing values will drop. If the supply is less than the demand, housing values will rise.

(In California the supply has increased & demand has diminished therefore it has forced prices to dip)

Employment: This should be a no brainer. Solid & growing employment provides income for down payment & house payments.

Interest rates: This is very powerful driver in creating & sustaining property values. When the rates r reasonable, most people r willing to make important investments like purchasing a home. With lenders now offering easier loan programs to qualify, there r now many people able to purchase a home.

Now, just because lenders have been offering “generous” programs should not encourage people to go out & obtain any type of loan available. Many loans r dangerous & don’t fit with everyone’s lifestyle & economic situation. Many loan agents have been quick to over qualify borrowers & what’s worst not explain completely the pros & cons of each loan program available.

Rates have been creeping up little by little over the past couple of months & r expected to continue to rise a bit more next year as well.

It could be possible the “bubble” will burst but not likely. The Real Estate market will most likely will slow its rapid ascent, level out & maybe dip a bit. But a big burst? I don’t think so.

Nobody can tell what exactly will happen in 2006 with the Real Estate market or the interest rates. What u can do is get informed & protect yourself against a busting of the bubble. You can sure minimize the damage if there was a burst by planning ahead. How well secured r u in ur current job? Your income? Have much equity have tied up with loans? Does the equity u have now along with ur savings withstand a dip in ur home’s value during the time u anticipate to own it?

Don’t stretch ur finances by paying a high price for a home just because you’re stubborn & want to have that home.

And one FINAL thought: If u r looking to invest in Real Estate, this might be the best time for u to do it IF AND ONLY IF u r a true investor looking to invest long term. Real Estate is the BEST investment u will ever make in ur life!

If u r a speculator/flipper I suggest u dont do anything right now, u will end up loosing money.

low credit standards.overbuilding, greed, followed by , inflation then credit tightening , interest rates rise, building continues, ARMS kick up, followed by lowered consumer spending recession, foreclosure bad loans, fraud uncovered, deeper recession, illiquidity in homes, bank land sales, defaults, financial chaos, panic selling.and then calm.cycle repeats itself a few generations later..

The most frequent cause of ''bust'' cycles is that the market in general realizes that prices r over-inflated & corrects itself. At some point, buyers start looking at the asking prices & say, ''That is insane!'' They typically tender offers closer to reality. A few owners will be desperate for a sale & will accept these depressed offers just to get a sale. Once these deals r picked up as ''comps'' or comparable properties used in setting property values the whole house of cards will come tumbling down.

Sometimes this is influenced by the collapse of a market that the area is disproportionately dependent upon. Such was the case in the late 1980s in Texas when the botton fell out of the oil market. Suddenly buyers who had been flush with cash had little to spend & houses stopped selling all together. Sellers panicked & dropped their asking prices. The few buyers left saw asking prices dropping like flies in a cloud of insecticide & tendered offers even lower.

I bought a home in San Antonio, TX in 1990. The listing price was $68,000. I lowballed the seller at $55,000 wanting to see how desperate he really was. We finally settled on $61,500. The property valuation came in at $53,400! He was refusing to sell the property at first but his wife told him that she was leaving whether the house sold or not. We got it for $53,400.00. I reviewed the listing history with the MLS & he had had it on the market a year earlier at $95,400.00. He had turned down an offer of $95,000.00! I'd wager that he regrets that decision to this day. (I just sold it for $104,200.00)

Demand, demand, demand! After a natural disaster, like Hurricanes and Earthquakes, so many homes are damaged and people need places to live. When very large businesses open up in areas, like Oil Refineries and Ship Yards, the need for housing rises as well.

What drives the real estate market the most, is the rate of interest, and supply and demand, in the market place. Real estate is no different, from any other valuable commodity. The price of gold, oil and pork bellies, fluctuates in much the same way as real estate, for much the same reasons.

Supply and demand. Where I live, the real estate market is so hot that I can not find a house! When one comes available in my price range, it is usually sold before we can go see it! However, I live in a Katrina ravaged area where many homes and buildings were lost so there is alot more people buying homes than selling, with the exception of damaged or gutted houses which are pretty easy to find.

Well first, in your real eastate if your mama is around there is definately a boom later followed by a bust in her face.