Real Estate Bubble?



Housing prices have accelerated rapidly in the past couple of years, and it seems every day there is another article out there screaming “bubble”, and warnings that prices are going to fall rapidly.   Although we believe there is some truth to the “bubble” talk, by no means is this a nationwide Brassica.  The reality is some areas of the country are in a bubble, while others are not.

There are some simple tests you can do to check if your area is in a “bubble” zone, and then figure out if you should buy or sell a home.  These are by no means perfect test, but should give you a hint if you should be thinking about either selling your home or if you should keep renting and wait for prices to drop.

The easy rent test for housing bubble prices:

Find the price of a suitable home that you would like to live in, be it an apt or house.  Find out how much it would cost to rent a similar space.

Find out how much a similar home is selling for, along with monthly maintenance fees and taxes, etc.

Find out how much a mortgage payment would be for how much you would need to borrow.  Add the mortgage payment, main, and property taxes together.

Calculate your monthly payment on buying the home with the tax advantage of interest and property tax deduction.  Use your marginal tax and state rate, look up the IRS tables below to see where you fall.  Remember to use the highest rate you fall into and add your state rate if any:

Single filers

Married filing jointly or qualifying widow/widower

Married filing separately

Head of household

Tax rate

Up to $7,150

Up to


Up to $7,150

Up to $10,200


$7,151 – $29,050

$14,301 – $58,100

$7,151 – $29,050

$10,201 – $38,900


$29,051 – $70,350

$58,101 – $117,250

$29,051 – $58,625

$38,901 – $100,500


$70,351 – $146,750

$117,251 – $178,650

$58,626 – $89,325

$100,501 – $162,700


$146,751- $319,100

$178,651 – $319,100

$89,326 – $159,550

$162,701 – $319,100



or more


or more


or more


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  1. Multiply your total estimated payment X (1-your tax rate from above) This is basically your monthly payment.

Compare your monthly payment net of tax with your rent number.  Is there a big difference?  Over 25%?  If there is, this is a good sign of a housing bubble in your area.  We would recommend you stay away from buying and save your money until things cool off.  This is especially true if there are a lot of new developments going up around the area and people are “flipping” properties.  This is a sure sign of a bubble, be careful when interest rates rise because prices could come down fast.