Repetition is not prophecy. Just because you keep reading and hearing about "the bubble" in housing prices doesn't mean that it exists. The new tendency is to create bubbles in housing as if they were stocks. There are differences which you should recognize:
1. The stock market is a largely irrational portion of capitalism, strongly influenced by unethical and conflicted, highly subjective opinions by people who profit from the sale of stocks;
2. There is no economic rule of supply vs. demand in stocks, just hype and commissions earned by the influencers;
3. There is proven heavy insider action, especially on new stock issues (IPOs);
4. National and international influence affects the market;
5. Psychology and emotion rule its domain.
On the other hand, housing pricing is determined by the ratio between supply and demand. While the "madding crowd" will speculate and inflate its pricing as shortage becomes more evident, a house has rationality of location, its condition, its lasting marketability, the buyer's personal visitation, professional inspection for defects, and the pleasure of use. Unless it becomes a rental within speculation -- then the rules change and you'd better hope you were right when you made your choice.
Realtors and brokers are monitored by stringent laws and regulation. This is done to protect the buyer. It is enforced. There may be delusions as to how much money the speculator will make in buying the home, but that is not a part of the housing marketplace. You can fall under the influence of a liar, or a Realtor who lies or has no ethics, but they are the exceptions. But in stocks they proliferate even though there are many financial planners who have strict ethical codes and behavior. Their experience in stocks will be the difference concerning that sector.
Here are the caveats regarding whether there may be a "bubble" in your particular marketplace:
1. A bubble can appear when speculators become greater than 15 percent of your shopping/buying market;
2. Do not get into a bidding war on a property unless you know what you are doing and have done prior research on pricing and velocity of pricing in that specific market (how fast the pricing has been moving);
3. Remember that accelerating velocity of pricing (inflation) brings prices to its peak faster and you do not want to overpay for a home at the peak of the marketplace. However, you can only know the true high or peak after it has begun to drop, for it is a statistic that follows after the action. I can predict it by analyzing the velocity. I am suspicious of any stock, company or real estate product whose pricing has been borrowing from its future market (another way of saying that its velocity has been bid up by irrationality).
4. It is difficult to overpay for a home if you will occupy it for a number of years. Then it is a legitimate investment and you are the owner. You and the lender will decide whether you are capable or should take on a mortgage and make monthly payments that can feather your nest, or drive you crazy or burden you if you lose income for awhile. Common sense is important in making a decision on how much you can or should devote to home ownership and upkeep.
5. Know when to contact a real estate attorney. Use proven expertise. Make certain that a title company is your assistant in all of this home buying.
I do not believe the housing sector is riding a bubble. Prices have begun to reflect that the accelerated velocity of the high end has reached its current limit and is correcting itself -- even in areas where there is no new land, only tear-downs which can cost the buyer much more.
The caveats conclude with: Haste always makes waste; the human brain is a stupid thing when it ignores marketplace facts; objectivity and common sense are incredible allies in rational judgment. Please write to me if you are in a quandary. But remember to ignore jargon. The marketplace is a condition, not a rumor.
Goodkin is an international real estate adviser and strategist, and has been a housing analyst since 1956. He can be reached at email@example.com.