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The Housing Cycle Price Slap

Someone famous once said, “Those who refuse to learn from history are doomed to repeat it.” When it comes to income property investing, it’s a good idea to keep one eye in the rearview mirror and always maintain a sense of the Big Picture as related to housing prices. Are we already moving towards another bubble market? It seems like we just left one behind.

Both the financial media and numerous discussions here at Jason Hartman’s HeroicInvesting.com have been devoted to the topic of the 2002 to 2006 housing bubble, which was followed by an all out price collapse, caused by the foreclosure crisis and other factors. The natural reaction is to think that we won’t have to worry about anything else like that for a good long time. After all, there’s usually a long time between bubbles, right?

The truth is some real estate experts say there is usually about a ten year gap between bubbles; that’s just the natural cycle of the housing industry. Keep in mind that if we want to peg the actual burst as 2006, we’re not that far from completing the cycle again. Just to increase your paranoia, there are a handful of signs that we might be seeing the early stages of a housing bubble forming again.

How can that be? Isn’t the economy still in the crapper? Most people would look at rising prices and high unemployment and say, yes, the big picture is still pretty dismal. Just don’t let that fool you into thinking we can’t have another housing bubble. Here are a few things we have noticed.

Price Increase

The last time around, back in 2007, prices began rising at around 7% annually, which increased to 12% by 2005. Considering that the usual rate of price increase is about 3 to 4%, you get some idea of how to judge a market that’s heating up. Now guess what the price increase was in this past December? Don’t fret. We’ll tell you – 8%.

Gulp. Should we be worried? Possibly.

Driven by investor demand, regions that were hit hard by the value slump, like Florida, Las Vegas, California, and Phoenix, have seen a double-digit rise in house prices. Having cleaned out much of the available low-priced foreclosure inventory, income property investors and large hedge funds are bidding up the prices on remaining stock. As prices rise, expect many of these investors to decide to take their profit by dumping a bunch of properties on the market all at once.

This story should sound familiar. It happens every time a housing bubble comes to an end with a giant ‘popping’ sound. So if you’ve been standing on the sideline waiting for more of a price recovery to get into the game, you might have already missed your chance.

So long housing recovery. We barely knew you.

The Heroic Investing Team

 

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