Bubble Identification Tips: What to Know Before the Bubble Bursts in Your City

For those whose real estate careers survived the 2008 bubble burst, scrutinizing real estate trends in hopes of protecting yourself from subsequent disasters should now be a common practice. What things should you look toward as a means of predicting if things might blow up in your face, yet again?

These real estate trends may signal a market that's about to pop:

Shaky loans

Subprime lending is risky. Though the FHA still offers loans with minimal down payments (3.5 percent), lending practices deviating from current elevations in underwriting standards may signal a need for caution.

Over-extended leverage

A bubble means lots of leverage – banks accepting minuscule down payments from buyers as a means of securing the purchase. Current trends this year point to a cycle devoid of leverage. The average buyer is putting down about 35 percent, and in some markets, cash buys are up, such as in New York City where 45 percent of transactions are cash.

Home prices outpacing salaries

When home prices rise and salaries don't, people feel forced to rent or driven to eke out an existence in a home they can barely afford. It doesn't take a genius to realize that this isn't sustainable. If business isn't rising in outlying markets, but only in main metropolises in combination with shaky loans and leverage overextensions, keep watch with a wary eye. (Keep in mind here, we do not mean rapid home appreciation, but unsustainable rapid price appreciation, which fundamentals don't support.)

Slowing foreign interest

Markets in need of correction may see a drop in international buyer demand. Toss in a natural disaster or disease outbreak, like Zika, and it may be time to break out the ponchos. Case-in-point: Miami.

Rising interest rates

Rising interest rates typically coincide with a drop in affordability, and thus housing demand.

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