The Truth about the Real Estate Bubble

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You've heard about the so-called real estate bubble—how could you not? The phrase is getting more media coverage than most celebrity couples. Doom-and-gloom pundits are gleefully predicting a collapse of the American real estate market; other experts say that's impossible. Real estate author and attorney William Bronchick says, "The ‘bubble theory' is full of hot air."

While it's true that many markets are appreciating rapidly, a corresponding crash is not automatic and in fact is highly unlikely. "Some analysts are comparing today's real estate market with the rise and fall of dotcoms in the late 1990s, but it's not an apples-to-apples comparison," says Russ Whitney, real estate investing expert and bestselling author of The Millionaire Real Estate Mindset (Doubleday) and Building Wealth (Simon & Schuster). "The reality is that there is no national real estate market. Statisticians might put together national statistics, but the markets are local and driven by local conditions."

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Some investment advisors see the total rise in value of residential property as a bubble indicator. One such advisor is Buck Hartzell, who writes for The Motley Fool. He believes that holders of real estate, equities, and high-yield debt are likely to get hurt when the market deflates—including, he says, speculators who own properties that don't generate cash flow exceeding their mortgage payments.

That, says Whitney, is just one reason why education is critical to successful real estate investing. "This is a business with tremendous potential. You can build wealth through real estate regardless of the market, but you need to know the strategies and be able to implement them," he says. "You would not expect someone to graduate high school, read a book on business, and then be able to run a multimillion-dollar company. You would expect them to go to college, get experience, and work their way up. Real estate has multimillion-dollar potential and it's just not realistic to expect that you can realize that potential after reading a book or taking one weekend seminar."

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Whitney says that while there is no national real estate bubble, we may see some changes in local markets ranging from a slow-down in the rate of valuation increases to some slight declines in value. A savvy real estate investor who understands that and is prepared for it will be able to survive and even profit during the down cycle.

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Bronchick points out that real estate values are driven by supply and demand. As long as demand is higher than supply, values are likely to stay where they are or continue to increase. He notes that other economic trends are causing the real estate market to remain strong in many areas. Those trends include immigration (millions move into the U.S. every year), migration trends (as the baby boomers retire and move to retirement communities that are less expensive than where they had been living), marriage trends (more single people are buying houses and condos), and lending trends (it's easier than ever to get a loan).

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"The real estate market in your area can appreciate, stay flat, or decline, and you can still make money," says Whitney. "Don't worry about the bubble. Instead, invest in education, learn the strategies, and apply them. Get to know the markets in which you want to invest, develop a diversified investing plan, and put it into action."

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Don't let fears of a real estate bubble stop you from reaching your financial goals. Instead, learn how to invest so it won't matter what the market does.

Jordan Taylor is the editor of Millionaire Mentor™ Newsletter, which is published by Whitney Education Group, Inc.™ To sign up for a free subscription, visit http://www.russwhitney.com

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The Truth about the Real Estate Bubble