Facts and Fiction Understanding Real Estate Bubble: A ‘bubble’ sounds very chimerical or transitory the reason being that it is a façade created to over shadow the factual situation or thing. This applies to whether it is soap bubble, a technological bubble or real estate bubble. In real estate a bubble is considered an unrealistic vested interest out to make a profit as property markets work on different premises such as sales commissions and other carrying costs. Boston was witness to a real estate bubble in the 1980s when extensive growth of financial markets and associated service industries encouraged baby boomers to flock to financial hubs in search of jobs and housing.

The scene changed with stock market collapse in late 1980s with same people moving to the suburbs in search of cheaper housing and living standards. It was another roller coaster ride with overnight blooming of dotcom companies in 1990s turning Boston real estate prices soaring. The economic resurgence fueled by dot-com start-ups and financial gurus created property market hype of inflated real estate prices offering greater tax benefits of added federal homeownership tax benefits to owners. This was a bonanza especially when compared with benefits enjoyed by landlords in low-priced cities. The inevitable followed as high cost of living and property prices forced internet companies to move out to cheaper locales taking jobs and people with them.

Chasing Bubble: The indicative signs of real estate bubble are inflating prices of property and rents on decrease. The reason a property bubble is self dependent and survives on rising prices and gullible investors looking to make profits. The best way to deal with bubble is to wait for prices to plateau if wanting to purchase but if looking for rental accommodation then go ahead and sign contract. Rents are at lowest as owners calculate the profits they can make from property. But if a first time owner or the nervous type the first possible indication of bubble burst or sliding triggers panic reaction. In such situations one should remember that real estate market changes quickly swinging either way of profitability to owner or purchaser. It does not help to dispose of property without working out profit margins.

Burst or Boom: A bubble burst turns market into a volatile one for buyers with average home prices plummeting during first quarter and increasing over next few years. Boston property owners, when and if deciding to sell, should remember that no two houses fetch same price and that areas and condition of house makes difference to value.

To a buyer, purchasing house in bubble areas is a bonanza as the minute there is a collapse it affects purchaser, lender and mortgage brokers who are careful in giving competitive rates with limited risk involved. Here again one should see whether purchasing for self use or as an investment. If buying house for personal use then it is advisable to buy outside real estate bubble but if an investment or planning to rent out then this is the right time and situation. The key to real estate bubble is price appreciation as it affects mortgages. In beginning one pays limited mortgage according to value of house but as house price appreciates it covers mortgage loan making the property more or less free. The advantage of being a housing bubble buyer is that within months or years the price of property will shoot up and the more one invests the greater the profit.

There is always a likelihood of bubble burst and property owners should be prepared for worst or good prospects. This is not to scare prospective buyers as real estate purchase is merely speculation. It helps to be prepared for real estate bubbles burst as then loss could be considerable depending on city and location. In the Northeast of country prices dropped to 2.1 percent from July 2005 whereas in other parts they rose by 3%. In Boston real estate bubble witnessed 10% decrease in sale of high-end single-family homes with increase sale of condo and luxury homes putting buyers in bargaining position with low mortgage rates.

Signs of Bubble Burst: There is a link between job growth and home price inflation and this applies to Boston and other major cities where substantial growth in incomes has not kept pace with real estate price rise. With technology industry moving out to other states and cities the real estate scene changed. Boston has been lucky to escape major natural disasters such as hurricanes (Katrina), earthquakes and floods that speed up bubble burst but according there is a stagnant growth effecting spending power of people bubble or no bubble. Any real estate bubble encourages purchase of home equity loans and refinancing of mortgage and every time millions are earned by owners through resurgent house values it finances holidays, luxury spending in malls and retail outlets or savings.

The downslide can be stopped with correction of real estate prices by speculators, developers and promoters with offer of affordable housing to middle and working classes in Boston. Another way to phase out real estate bubble crash is letting prices remain stationary for 3-5 years creating an illusionary respite for home owners. They can be advised to hold onto to property till market value goes up. Whether it is a property bang or real estate bubble the two are interlinked and if one occurs the other is bound to follow. There are ways to avoid financial effects of bubble bursts and these are:

1. Keep overall debt load to minimum so as to better manage any unplanned relocation.

2. Utilize equity funds to increase value of home.

3. It helps to purchase house with resale value as it has better potential of fetching a good price. Present day Boston is considered a risky housing market and this is due to disparity between jobs and overriding real estate bubble. Just follow the lines and strike when 'bubble' permits to sell.