Monday, June 09, 2008

Over-valued Housing Market

When it comes time for an over-valued market to correct itself there are several ways it can happen. There are investors that think the real estate earnings are out of balance when talking about price to earnings ratios. These ratios refer to the amount of rent collected within a year versus the purchase price of the property. Normally that ration should be right about 150.

There are some areas right now that the ratio is around 400. This earning-ratio could be corrected through the decrease of prices, the increase of rents or some sort of combination. There are some financial experts that say the real estate market could take 20 years to correct.

So that brings up the question of what you are going to do. Will you wait a possible 20 years for the market to change or will you adjust how you invest to make money now? When you talk with financial advisors they speak in terms of controlling the risk relative to the potential to gain in the investment.

If you understand these concepts and follow these steps anyone is able to learn how to invest at times when others perceive the market as a bubble that is dangerous and risky.


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