There are many things about finances and the real estate world most people don’t understand, and one of the those would be the term “price bubble.” The term lends itself to nice imagery, which allows us to guess the meaning, but still, it’s just a guess. How can you participate in the conversation about the possible current housing price bubble if you don’t exactly know what a price bubble is?

You could just comment “It’s going to eventually pop,” and you wouldn’t be wrong; but what’s the fun in guessing your way through a conversation when you could dazzle people with your knowledge and wits? Here’s a little insider’s knowledge about the price bubble you can use in casual conversation to leave your listener impressed.

A Housing Bubble Doesn’t Involve Soap

It all starts with low interest rates. The lower the interest rate, the more people believe they can finally afford to buy a home. As a result, the housing demand spikes so much there aren’t enough houses to accommodate the demand. And, as we all know, the value of an item in high demand soars.

When the value of the houses soars, its a good thing for realtors and the housing market, but they must walk a fine line. If the realtors play up the high demand/low inventory situation, they drive up the value of the houses. Yes, they make a lot of money, but they also hurt their old clients. You see, the people who bought houses when the market was cheap become drained because they can no longer afford their houses. The result: A lot of foreclosures. The resulting result: A flood in the housing market.

At first that might seem like a good thing, but consider how human psychology factors into the situation. When an limited item in high demand is all of a sudden available, the value of the item decreases and fast.

And that is how a miraculous housing bubble is born, bloats, and busts.

Is Orange County Blowing Bubbles?

There is a lot of speculation right now whether or not Orange County is approaching a housing bubble, but the best advice we can give is to stay the course and to resist being dragged into any herd-mentality decisions.

It’s true that the market is steadily making a comeback. In February, home buying was up 18%, but that doesn’t mean it’s going to burst right away. It’s always best to be cautious about major decisions, like buying a home, but that doesn’t mean you should avoid the housing market altogether.

Don’t Hire Mr. Bubbles

Another great way to avoid getting trapped in an imminently bursting bubble is to hire a realtor who works for you and not solely for profit. A good realtor will find you homes for sale in your price point that you can afford to keep in good and bad times. A good realtor will also provide you with a complete picture of the housing marketing you want to buy in, including the best time to buy in that particular area. In short, you should feel comfortable communicating with your realtor, and feel confident in the answers you are provided.

If you want to explore the Southern Orange County housing market, let the Arne Dewitt Group find you the perfect house to call your own.