Will the Bubble Pop
In the Near Future?

Question: Several national magazines predict that the real-estate "bubble" is going to burst. I want to buy a small home and move out of my apartment, but I am afraid to take the leap if prices are going to collapse. Is the bubble really going to burst -- and if so, when?

-- Iris-Jean, San Diego

Iris-Jean: Unfortunately, being a contrarian is a good way to catch readers' attention and sell magazines. Since you believe, after seeing these headlines, that real estate may collapse, it is likely that others also assume this will occur. While predicting it can actually exert pressure to make something happen in a self-fulfilling sort of way, I don't think this will happen soon.

Most people forget that we are only four years removed from the longest and deepest real-estate recession since the Great Depression (1992-98 in most parts of the country). Many areas are just now seeing prices come back to levels they first achieved 10 years ago. Of course, other areas are surging ahead. Historically, most real-estate recoveries last five years or more. This one may last longer simply because the previous real-estate recession was so pervasive.

Further, as long as interest rates remain low, the number of people who will qualify to purchase homes will remain large. While affordability is becoming an issue, it isn't as serious of a problem as it was in the late 1980s and early 1990s.

Also, much of the country is experiencing a severe housing shortage. Because of reduced construction during the 1990s, the U.S. doesn't have nearly the housing stock that it needs. Indeed, people clamoring for new homes are a big reason that prices are being driven upward.

But no one can predict the future. Increased interest rates and a double-dip recession of increased severity are among the things that could pop the so-called real-estate bubble. Another terrorist attack also could shut down most markets, including real estate. Finally, a war in the Middle East would have consequences that no one can predict.

After the dot-com collapse, there is a general tendency to assume that any market that is strong must be overheated and will soon collapse. Maybe -- but I don't think real estate is overheated. Will it collapse? Eventually, yes. But then again, so will the sun. In the meantime, prices will probably continue to spiral upward.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent books are "How to Get Started in Real Estate Investing" and "How to Buy a Home When You Can't Afford It" (McGraw-Hill, 2002).

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