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Updated over 5 years ago on . Most recent reply

Account Closed
  • Rental Property Investor
  • Grove City, OH
71
Votes |
93
Posts

First RE purchase at the top of the Market?

Account Closed
  • Rental Property Investor
  • Grove City, OH
Posted

According to a Forbes article I recently read "5 Signs your real estate market is a bubble"... My conclusion is that many markets may currently be in a Bubble (and therefore it makes sense for me to wait it out for my first investment):

1. Shaky loans - Not sure about the status on this one... Personally My credit score is very high and I have no debt. Not sure if there are others out there being sold on mortgages they cannot afford based on their income, credit scores, ext.(Forbes take is that credit standards are still very tight)

2. Lots of Leverage - In my opinion when there are banks ready to give out conventional loans at 3.5 -4% its getting shaky. I have applied for a pre-approval on several loans and what the bank has approved me for is a very high mortgage that I would not be comfortable taking on with a conventional loan. Although I have heard of many instances in my current Phoenix market that homes are now being purchased with cash many times.

3. Home prices out pace wage growth. - This one is the most concerning to me. My parents live in rural town in Ohio and just sold their home $100k more than what they paid for, and wages are not growing at such a rate to sustain this rise in home prices. I think this will be the next major indicator that we are in a bubble.

4. Foreign demand slows - according to Forbes foreign real estate demand has diminished. I have no personal experience or knowledge of this though?

5. Interest rates rise - Although interest rates have been low I don't believe this will help the wage/home price dilemma. 

Am I being caught up in analysis paralysis or is this a legitimate concern that I should not be buying at this time? I have been saving up for a DP and currently I have $16k saved but I would like to save up $25-30k when I buy. Im itching for a deal in the next 6 months but I don't wanna jump the gun either...

What do you think?

Most Popular Reply

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541
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Dustin P.
  • Realtor
  • Tempe, AZ
440
Votes |
541
Posts
Dustin P.
  • Realtor
  • Tempe, AZ
Replied

I think you have to look at each market separately and then ask yourself, is this a deal in this current market? People have been saying we are at the top for years. Do you want to wait 5 more years just to find out that this isn't really the top? That's up for you to decide.

If you buy a property that will cash flow though I don't think you have much to worry about. If population, job growth, etc. is strong and the market has a correction that forces some buyers out of the market, those buyers still need a place to rent. You'll see more of a demand for rentals and increased rent prices.

I think Phoenix for example right now isn't as frenzied as it was. It's still a seller's market, but you are seeing higher days on market in certain areas where people are asking for top dollar. Rents have exploded though, rentals are off the market within days with multiple applications. When running rent comps you almost have to use the active if it's less than a week on market because that's pretty much your comp. 

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