Wednesday, September 08, 2004

Bubble or just supply vs. demand?

Yesterday, there was an article in our local newspaper about the housing market here in the Phoenix area. It says the number of used homes for sale has decreased by about 30% in the last year, which means demand is high, supply is low, and therefore, prices are rising and houses are selling fast. There are various reasons suggested for this, with the most popular being that investors are buying houses to rent and that fewer people are moving. It's amazing to read that some homes are selling within hours of being put on the MLS and that some buyers are waiving inspections and putting down $10,000 non-refundable earnest money deposits. Wow.

So is this a real estate bubble or just a case of too much demand and not enough supply? It's probably a bit of both. I do think once the market cools down, we probably won't see a seller's market like this for another 15 to 20 years, short of another major catastrophe like the S & L scandal some time ago. In times like these, it's best to stick with basics - buy for at least 25% to 30% below fair market value and make sure the property makes money when you buy it - and keep a close eye on trends. Be prepared. Remember that when the market tanks is often a very good time to snap up deals.

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