Is The Housing Market Overheating . . . Again?


It seems that in these past two weeks, we have experienced a tremendous increase in relatively negative news regarding the real estate market.  Usually I just chalk up all this negativity to the media working hard to score a few extra bucks.  However, this time I am choosing to not be so hard on the media and the bad news.


Several reasons.

Is Housing Overheating?

The biggest reason is that I believe that the housing market in general is in danger of becoming overheated… again.  As evidence, just look at who the buyers are:

  1. First-time homebuyers getting loans that for some consume almost 50%of their income
  2. New investors with little cash and less knowledge rushing into the market because they see the “opportunities”
  3. Seasoned investors buying everything they can… because the prices are just too good to be true.

While I could spend a considerable amount of time discussing each item above, I would like to focus instead on the second item: “new investors with little cash…”

New Investors Jumping In Too Soon – Unprepared?

Much of the news these past 10 days has either discussed the extreme number of foreclosures in the past 3 months or the fact that housing prices will continue to decline for the next several years.

Consider this article in the Miami Herald that indicates that housing prices will decline another 30%, and that is already on top of 48% declines since 2006. 

Or this article on DailyFinance that talks about every bubble following the same trajectory on the way down that it did on the way up.  The chart in the article tells it all.

Most experienced real estate investors know how this works.  They understand that old mantra, “You Profit When You Buy,” and purchase their deals accordingly. Making sure their deals reflect projected value trends which they factor into their purchase price.

Where it is more unsettling for me, at least regarding the new crop of investors, (did you know some gurus estimate that there is a 50% churn rate of noobs into real estate investing every year?) is that these investors just see low prices and without knowledge of or consideration to long term trends they jump in and ultimately end up getting slaughtered. 

Bottom line, the overall housing market has a long way to go before things return to normal, whatever normal is at that time.   Don’t be lured into deals that look too good today, because depending on your market, prices have not yet bottomed out. 

If you doubt this statement just ask someone who purchased a $40K property in Detroit last year, what it’s value is today.

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.


  1. The news stations constantly run programming talking about great deals in places like Detroit, where you can buy a home for only $1. These along with other hype from the hypsters convince unknowing investors to jump in and buy properties that aren’t worth the dollar you pay for them.

    As I always say to anyone jumping into the biz, heed caution.

  2. A few weeks ago, I was looking at an REO single family detached house in Dale City, VA. It was listed at $89,900 and the ARV was around $180-$200K. After looking at it, and knowing it needed about $20K in repairs, I told the agent I wanted to make an $80K all cash offer. He said he already had 9 or 10 all cash offers from other investors at $40K and $50K above list price.

    I told the agent, “They can have it. They don’t know what they’re doing. They won’t be able to sell it”.

  3. Glen D. Scharer on

    I belong to an investor group of around 80 seasoned investors. We have all stopped looking at REO’s, they are a waste of time right now. I am not sure where all these cash buyers are showing up from, but all good deals have at least 10 cash offers and are selling for 10-20K more than the asking price. We have not seen the bottom yet and newbies buying now are going to go broke. These prices will not go up over 5% in the next 3-5 years, more problems coming with big government taking over. The worst is yet to come, hold on to your cash, you will need it in your survival kit, if it is even worth anything in the near future!!!

  4. Demos… this is what I find so unsettling. Some investors are moving away from the fundementals and just as you indicated they are overpaying and will not be able to sell on the backend… and we will watch this miserable cycle of “speculators” getting killed start all over again. In less then 3 years!

  5. Glen… what market are you in?

    I totally agree that anyone who is getting into real estate today thinking that appreciation is going to give them any part of their deal is living in a fantasy world.

    I am on the fence regarding the worst to come… but more and more everyday I am not encouraged.

  6. Being out here in California, I’ve certainly heard much about opportunities in Detroit. To ask a dumb question, what exactly is the position today of a $4k house bought one year ago? Are these these one going for $15k right now? They’re cash-flowing, right?

    As to new investors rushing in where wiser ones fear to tread, if they’re paying cash and the values go down, they’ll certainly lose a lot of equity, but since loans aren’t involved, I don’t see how this would have anywhere as much impact on the financial system as the last time around. Thoughts?
    .-= Eric Schwager´s last blog ..3 Secrets to reading Housing Data for the Real Estate Investor, part 3: Looking beyond the trend =-.

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