What is a Real Estate "Bubble"?

A real estate bubble, more commonly referred to as a “Speculative Bubble”. In real estate as in many other markets, for example the stock market, when we see increased buying interest that drives prices higher with buying activity feeding on itself it creates the opportunity for a speculative bubble. People buying just because they feel prices are going higher without a fundamental reason for the purchase many times. Buying for speculation is Ok by all means but when you have substantial buying activity without fundamentals supporting prices, it lays the foundation for a market correction. As in the stock market with rumors or news that may bring increased buying, the prices can increase quickly. Prices will most always reach a point that buying slows or stalls and starts a correction. Typically in a correction we see prices fall faster than when they were increasing. As the prices fall in a correction, prices may fall below fair market value creating a good buying opportunity. Once prices bottom and buyer interest starts to increase, generally prices will start to increase slowly finding fair market value.

We have seen many reports on the Naples Florida real estate market these last few months giving a wide range of opinions. The Naples real estate market will always be a great long term market but as any market we do have market cycles from time to time and in fact we’ve just experienced a “Speculative Bubble” for most of the Naples real estate market. We must understand and remember that not all neighborhoods within the greater Naples area responded the same but for the most part the Naples area has experienced a “Speculative Bubble”. Very simply we’ve seen very strong speculative buying these last few years driving prices higher at a very fast pace and once it reached a level that the buying started to slow, the speculative buyers stopped and the market slowed and prices started to decline, starting the correction phase. The Naples market in general started slowing last summer in July 2005. The question is always how much will prices decline before buyer interest returns to start decreasing the inventory levels, looking for a more normal market with a balance of supply and demand. The important thing to remember is that all the neighborhoods in the Naples area will vary to some degree in how much market conditions affect them. Some may decline more than others and some may see buyer interest return sooner than others. A large part of the Naples market is seasonal, second home buyers and this market may see larger price declines and be slower for buyer interest to return for a second home buyer does not need to purchase.

If someone has a property they want to sell now is the time to be selling and you need to price the property correctly to sell it now before prices move lower. For those looking to buy now is the time to be looking for opportunities as prices are declining and some neighborhoods start to bottom.

I understand that many may not agree with these comments but the market speaks for itself for we have already seen price declines in the Naples area of 20% or more in some neighborhoods. The unknown is always how much lower prices may decline before we see buyer interest increase which will depend on a number of factors. Not all neighborhoods will respond the same so it’s very important for a seller or buyer to have an experienced Realtor with a proven record and knowledgeable of the community to assist them in times as this in making the best decision.