Last week, I wrote an article about real estate bubble and some tips to protect you from it. If you read the article you will find out that the first tip I give is Learn how to determine if there is real estate bubble in an area.

I did not provide much more information about this first tip in that article. I know it will be a long explanation on the theories and skills that needed for this tip. So I decided to write another article specially targeted on the topic on how to determine and keep track the real estate bubble in an area. 

Without further ado, below are the tips that I want to share with you:

1. Keep tracks the real estate news. Real estate news such as real estate sales, house prices, mortgages lending, foreclosure rate, homebuilders and housing stocks, REITs and other relevant global news are very important for real estate investors. All of this will let you know what really happens in the real estate market and hence know the trend of real estate. Local newspaper and internet will be the good sources for you on this.
   
2. Calculate the price to income ratio. This is the most basic calculation that many economic experts use to calculate the local affordability to own a house. If the ratio is too high, meaning that local people cannot afford a house and this is a phenomenon that real estate bubble might happen in that area. In this case, you must pay attention on that market before you put any money in it.
   
3. Build a investment team. Real estate agent is the man who always keeps in touch with the market. So he/she might provide some valuable insights into the market condition. Besides that, your accountants, bankers and financial planners might also be able to help you on this. This is why you need a team to assists you become a good investor.
   
4. Learn and use the following formulas. I collect the following formulas from Wikipedia. This is some of the formula that we can use to measure the housing market for an area.

PS: Expenses here are including the maintenance and also property taxes. This is a common metrics used to analyze other uses of the money tied up in a home.

PS: This formula is used to measure how much the buyer is paying for each dollar of received rent income. If you found that there is a rapid increase of home prices combined with a flat renting market, real estate bubble might happen in the area.

So far, there don’t have any accurate facts that real estate bubble is really happening. This is why there are always some arguments between financial experts about real estate bubble. Anyway, it is good for us to learn how to detect a market. This will be a skill that going to help us to make money and at the same time prevent us to loss any money in real estate bubble. Kill 2 birds with one stone.

Related posts:

1. The Real Estate Bubble and Tips to Protect you from it This is an article about real estate bubble and what...
2. Real Estate - How to survive From Housing Bubble? According to Deborah Fowles from About.com, a real estate bubble...
3. Real Estate - Poor Guide’s To Real Estate Investing I don’t know whether the story is true or not....
4. The Reasons Why Getting Started in Real Estate with buying Rental Property There are a lot of ways to make money from...
5. Real Estate - 10 Real Estates Mistakes to avoid in 2006 Today I found a great article from Bankrate.com about 10...
6. How to build wealth from Real Estate in any market trends Did you hear any news about an investor goes bankrupt...