Lots of questions today out there around the topic of a Price Bubble.
The question really is – are we in a Bubble on prices, like we saw in 2004-2007.
Here’s the answer:
A Bubble is a large run-up on prices that then peaks out and then falls back down. See the chart below that shows what a Bubble looks like.
Notice in this charge, you can clearly see the ANGLE of price increase that occurred in the last Bubble. Very different from a gradual rise in prices like we have been on since 2012.
I’ve placed a dotted line at the END showing a POSSIBLE beginning of a Bubble. Yep, we MAY be starting a new bubble, but not “In It” yet. And here’s the KEY to that… Look at the Green Note pointing at the last beginning of a bubble.
The people that bought in the first year or so of the last bubble never had their values fall below what they paid for it. Even in the BOTTOM of the correction. So, a few lessons from this.
- If you plan to Buy or Move to a better home in the next 7 years or so (that’s how long the last bubble lasted) then DO IT NOW. Interest rates are great and IF we follow the EXACT last bubble, you shouldn’t get upside down on your purchase, even if it takes 7 years to get through the next cycle.
- Resist the urge to refinance if we go up dramatically in prices over the next few years. Keep your great rate (right now we are BELOW 3% again if your credit is great), your great payment, and your great loan balance. Don’t get greedy while the run-up happens, and don’t count on that equity build lasting forever. It may take 10 years to really have a good chunk of sustained equity IF we follow the exact last bubble cycle.
- Be smart. Buy because of the payment. Not the price. Buy because it’s the right house to get you through the next cycle. Buy because it’s a good investment property because rent covers the payment easily.