Real Estate

Navigating the Real Estate Market in an Economic Boom

By Tom Burchnell

There’s no doubt that the economy is hopping, and that’s absolutely being reflected in the real estate market. What exactly does a real estate boom mean for homeowners, home buyers, and people who rent their homes?

Home Prices Are Rising

By the numbers, things are good here for a real estate boom. More people have jobs, wages are increasing, and GDP is still on the rise. Due to economic growth in the U.S., there’s a greater demand for housing. Basic laws of supply and demand mean that as more homes are needed, the price for them rises. To top it off, the construction of new homes is occurring much slower than demand requires. Prices are going up, and experts suspect they’ll keep doing just that, though they’re rising much faster in some areas than others.

Real Estate Booms Are Happening All Over

This means that, in those select markets, the prices of housing are rising rapidly. They’re rising so much, in fact, that eventually the people who live there will have a difficult time affording them. In real estate booms, there will generally come a point where average prices will reach a point that isn’t sustainable and prices will rebound. This means that a home could become significantly less valuable in a very short time.

What Does That Mean for Home Owners?

Before home prices peak in a real estate boom, homeowners could find themselves holding the deed to an asset that will net them far more than they paid for it. This means that if your market is in a boom and you’ve considered selling, for whatever reason, you might just have a little more incentive to do so.

What Can Buyers Expect in a Real Estate Boom?

A boom can be a boon or a bust for buyers, depending on their financial situation.

Buyers who can afford to spend the extra money that will be necessary to purchase a home in a boom will be making a great investment so long as they are willing to sell the property before the bubble bursts and prices deflate, leaving them with a home worth less than they paid for it.

Prospective buyers who have limited financial resources may find that they simply can’t afford to buy a home in a boom. A boom is defined by prices that exceed what the average income of the people who live in the area could afford, meaning that most people would have a hard time paying a mortgage.

It’s important to note that there’s an inherent risk in buying a home in a booming market. If you’re unable to sell the property before prices begin declining, you could wind up upside down. This means that you owe more than your house is worth, and if you’ve got a mortgage, you’re stuck with high payments or coming up with the difference between your home’s value and the price you paid for the home.

What Happens to Renters in a Real Estate Boom?

Rent prices often aren’t affected as much as home values in a boom, though they’ll likely see some increase. However, renters may find that there are fewer rentals out there since investors often stand to make more by selling a property than renting it out.

Is Your Real Estate Market Booming?

It’s important to keep an eye on the state of the real estate market in your area. Watch for signs of a boom: consistently increasing prices and prices that exceed what people can afford, which are usually accompanied by a strong economy.

Key Takeaways

When the economy starts to boom, there are several things that happen with the real estate market. If you want to know how an economic boom could affect your interests in real estate, speak to a financial consultant and a real estate agent to plan your next steps.

Topics:
Buying
Real Estate
Selling
Tom Burchnell Director of Product Marketing for EasyKnock, licensed real estate agent.

This article is published for educational and informational purposes only. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process.