Unlike the stock market, where consumers are aware of and accept the risk that prices will fall from time to time, many people who purchase a home do not believe that the value of their home will plummet soon.
1) After an Extended Period of Acceleration, Home Prices Are Plateauing
If one of the trends in the housing market is year on year, consistent real estate price increases, it indicates the possibility of an impending housing market crash or at a minimum, a more benign correction.
When we start to see lower mortgages expanding in the market, it’s another warning that a housing market crash is on the way. Higher mortgages could create a housing catastrophe if lenders relax underwriting credit standards and riskier mortgage requirements.
Few people are better equipped to foresee future housing problems than real estate agents, who have years of experience in the local market. However, as a prospective buyer, you should pay attention to any warnings or negative feelings they express.
Comparing rental prices to capital values is one of the best strategies to forecast a housing bubble when the underlying economic fundamentals of a property change and the rental and capital values of that property alter at the same time.
Another way to determine affordability is to compare the annual income of an average person to their neighborhood’s capital values. The outcome will tell us how many years a person will have to work to buy a home in a specific location.
Absorption rates indicate the number of residences purchased in the market over a specific time period. This figure is usually derived from the number of petitions for property title transfers that the government receives.