Real estate bubbles are created when an area’s property values increase very rapidly, expanding quickly, like a bubble. The metaphor continues in that when this bubble pops, the market also loses value very fast, even quicker than the value was gained and people that paid a premium for a piece of property are then left owing much more money on that property than it is worth.

Like most economic conditions, it is hard to see a real estate bubble until after it is over. Predicting where a bubble is occurring and either avoiding or selling early in this area will help your investment in a bubble area. The problem for most investors is that it is very hard to tell the difference between a true bubble and an area that is simply increasing in value that will be sustainable. Also desirable is avoiding negative equity in a real estate investment, and when a bubble bursts in the real estate market, negative equity will affect the property owners ability to buy or sell other property.

The only way to not be as negatively affected by a real estate bubble that goes bad is to buy what you can honestly afford to keep. If you can make payments on the property and you like what you have purchased, then the loss in the investment won’t make you completely miserable and the ability to hold on to the property may mean that you can wait to sell it when its value increases again.

Typically though, when a housing bubble occurs, many people become trapped in a mortgage they can’t afford, with property that doesn’t add up to the value of the debt now owed on it and selling the property won’t help. All of these possibilities make it very helpful to know if you are buying property in an area that may be experiencing a real estate bubble.

Any time you are purchasing any kind of property, the best idea is to make sure that you are paying an appropriate price for the area and that the market in the area has been steadily increasing over a period of extended time, not just a neighborhood everyone is going crazy over today. Don’t buy before you research the area well.

It is very easy to go back and track the market of an area over a certain period of time, and to remember to consider the outside factors of local employment security, area income potential, school zones, property taxes, neighborhood activities and local amenities. All of these factors can play a distinguishing part in helping a potential buyer make sure they are making a good investment, not just jumping in at the end of a once good thing.