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Is there a real estate bubble about to burst?  The pro's don't think so.

5/21/2014

 
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You’ve probably heard all sorts of mumblings and rumors in the past few weeks or months that the economy is in both a stock bubble and a real estate bubble.  Well, I don’t know much about stocks, so I won’t comment on that except for knowing that if you buy great Blue Chip companies at a reasonable price with competitive barriers to entry, you should do fine in the long run.  As for real estate, which is more up my alley, I can state what I have been seeing - that things have generally been progressing very calmly here in Westport, CT and in Fairfield County.  Prices haven’t been increasing like they did a decade ago when it was not unusual to see a bidding war every other day.  As a matter of fact, at the height of the real estate bubble 6 years ago or so, all homes in all markets were overvalued based on a number of factors.

Jed Kolko, the head economist at a top internet real estate data firm, recently did a study looking at home prices relative to their fundamental value.  What does “fundamental value” mean?  He looked at incomes, rent fees, historical prices and much more data, in order to gauge whether prices appeared to be in bubble territory.  His conclusion?  Nationally, he believes the country is not in a real estate bubble.  He actually thinks that the country is 5% undervalued from where prices should be nationally.  That said, he did say that there are pockets of bubble prices in some parts of the country (mainly parts of California like Orange County, L.A., S.F., Venture County and San Jose, along with a few other areas in Texas, FL and Hawaii.)

So should you be concerned?  Well, according to Kolko’s analysis, you should be happy if you are looking for a home to buy in Fairfield County and a bit less happy if you are trying to sell your home right now.  This is because his report states that Fairfield County, along with New Haven and Hartford, offer home prices that are about 16% lower than what the fundamentals tell him they should be.  Other areas around the U.S. that he states are undervalued (and therefore not near bubble territory) are Lake County/Kenosha County, in IL and WI, Cleveland and Toledo OH, Palm Bay, Melbourne and Titusville FL, Chicago and the hometown of the “King of Rock and Roll”, Memphis, TN (although Elvis was actually born in Tupelo and moved to Memphis when he was 13 years old.)

So what does this all mean?  Well, if you are looking to buy a home in Fairfield County, you can be slightly re-assured that the area isn’t in a real estate bubble.  Of course, there’s no way of knowing what tomorrow brings.  Will Russia invade more of Ukraine?  Will interest rates spike up sooner than the Federal Reserve is claiming they will?  Will Iran develop a Nuclear weapon before we can stop them?  If any of these things, or more, happen, it will probably be a reason for short-term concern and thus, volatility in the marketplace.  However, it’s still nice to know that it seems, according to the report mentioned, that prices are not in a bubble.  You should, of course, do your own homework and assessment of the marketplace to reach your own conclusions.

In the long run, we live in a great county.  The economy will ultimately improve.  Things will continue to get better, even if there are short-term blips.  If you are looking for a home that you plan on living in for a number of years, then you should be most concerned about finding a place that you love and that your family will love.  This is what’s most important when buying a home. 




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    Author

    Faith Schachne.
    Real estate agent. Mother.  Wife.  
    Fitness enthusiast.  Tennis player.

    You gotta have Faith.

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Last Updated 5/13/14


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Faith Schachne   203-858-9876  Faith@RaveisRE.com

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