April 5, 2005

The inflated “bubble”— 
Will it burst?

By Donna Nardi
Special to the Times

Everywhere we go these days, we can’t avoid that daunting question “will the housing bubble burst?”

Although the term seems overused, it’s something we, especially in Silicon Valley, should consider. Investing in real estate here requires a greater portion of our personal and family wealth than most areas of the United States. Since there’s more risk, we should consider this question more seriously.

There are fears that the housing “bubble” will burst as quickly and as devastatingly as the dot-com bust. But the differences between stocks and homes certainly reduce the risk.

For one thing, no one could live in a stock, or sleep on a piece of paper. Homes are tangible. People have to live somewhere, whether it’s renting from a landlord, or paying a mortgage to a bank. Nor do people sell their homes as often or as quickly as they would stocks. When investing in a home, we not only live in it, we have tax advantages that help enable us to keep that home.

A few years ago, stocks were followed and touted daily on the news and infomercials. Plenty of strategies abounded of how to make the most in the stock market. Everyone wanted to get a piece of the pie! Easy money, right? What a huge disappointment with the dot-com bust! This shook up our confidence in the economy, as well as the economy itself.

Because real estate is tangible, many people feel investing in it is a sure thing. Today, home-improvement shows have taken over. Everyone wants to know how to improve their home, and get more enjoyment out of it. They also want to know how to get the most money should they decide to sell. These shows are all the rage.

With such a large investment of our personal wealth, we must maintain it, improve it and enjoy it. What will give us the largest return for our improvement investment? Should we remodel the kitchen, the bathrooms or install new windows? How about curb appeal?

So, instead of adding to our stock portfolio, many of us are more concerned with keeping our home investment at its peak. But with all the craze, climbing prices and the buying frenzy, comes the question—will this also be temporary?

What keeps the bubble inflated? In spite of the “exodus” from California, there is still a housing shortage. New home construction continues. Improving existing homes has been possible due to low interest rates, which, upon refinancing, gave homeowners cash to remodel.

There’s a limited supply of land, the Baby Boomers continue to buy and foreign workers and immigrants continue to pour into the United States. The job market is looking up. Even though mortgage rates are beginning to climb slowly, they are still very low compared to just a few years ago.

So what can we expect in the housing market these days? The housing market, like anything else, is cyclical. There will always be an ebb and flow. But, the chances of an extreme decline are virtually nada.

If one watches the rise and fall of the market daily, it would be easy to lose heart. However, if you make your house—and investment—your home, before you know it, time has passed and the equity you have earned is quite surprising!

You wipe your brow in relief that you bought when you did, and are way ahead of others still struggling to get into a home. In short, forget about the fact that you’re living in an investment. Just remember to live your life to the fullest with family, laughter and love. The rest will come!

Donna Nardi is a Realtor at Prudential California Realty in Willow Glen. You can reach her at www.happywayhome.com , or e-mail her at donna.nardi@prurealty.com, or call her at (408) 918-4410.