Just about everyone I talk to these days is afraid of the next real estate bubble. This couldn't be further from the truth, and you could actually be losing money while you wait to buy.
I am going to talk about four topics that will explain why we aren't in a bubble right now:
1. Before & After the Bubble.
If you look at prices before the bubble and prices after the bubble, in different neighborhoods of Los Angeles, you'll notice that they are all completely different. What happened after the bubble depended on the "merit" of your neighborhood.
2. Sales Price vs. Volume.
Most people just look at the increasing prices and assume we're headed for trouble. But, if you look at the actual NUMBER of new listings and sales, you'll see that we're very far off from the conditions we saw at the peak of the bubble.
3. Supply & Demand.
A simple concept, but goes along well with the Sales Volume conversation. The higher the supply, the lower the demand. So, this makes sense that when we saw the most listings hit the market, prices fell. In L.A. today, we have a low supply which drives prices up. This is completely normal.
Back in the day, all you had to do was "fog a mirror" to get a loan. NINJA loans: No Income, No Job or Assets. And, you didn't need a down payment. They were doing "80/20" loans which is an 80% loan and another 20% loan. So when they couldn't make the payment, they just walked away from the home. Today, not only is it very difficult to get a home, but you have to bring cash. People will think twice before walking away from the money they've put into their homes.
We still have a long way to go before I get worried about another real estate bubble. In fact, I don't think we've even invented the way we're going to screw up it yet. We'll figure it out sooner or later, but we have time now to buy and build wealth.
Let me know your thoughts in the comments or if there are any other topics you want me to cover.