It's hard not to get caught up in a housing bubble. If you've been planning on buying a home, saving hard for a downpayment and watching rising home prices pushing you out of the market, you're very tempted to buy before it's "too late." and you can't afford to. Without any experience, you might not recognize a bubble or know that what goes up must come down and wait to buy until then.
We were actually looking to move up to a larger home when the housing bubble hit. The house we had bought 10 years earlier for $120,000 was now worth $325,000! Great time to sell, right? Except we'd have to pay a hugely inflated price for our next, larger house, too!
Our solution was to add onto our house. We already owned the land and the house was situated on the lot so that even doubling the size of our house left plenty of yard left. It was a standard 1980s 1200 square foot rancher and we basically an addition the same size directly behind it. That way we were only paying for construction, not land.
We weren't the only ones adding on at the same time and construction companies were charging the amount of the difference between current value and completed value. Except this was inflated along with the entire market and we knew the actual market value of wages hadn't gone up. We looked and looked and finally found a guy who lived in the neighborhood who did construction on the side and who told us his labor rates. So, we did the addition for Time and Materials. He charged us for any materials he bought and he charged us $45 an hour for himself and $19 for his assistants. He bid out electrical, roofing and basic plumbing and did the rest himself. My husband did phones and data and I painted. We got 1200 square feet for $100,000. This was less than it would've cost us to move up to a bigger house of the same size!
So, the bubble burst and every house was suddenly worth less. Did we lose money? Counting our original house price plus the addition, we had $220,000 in a house that, after the "correction" was still worth about $320,000. So, yeah, we were up about $100,000! The market has gone up since then and it's worth more now, but we were doing really well even right after the crash.
Some of the people who sold and bought during the bubble were upside down on their new house after the crash. Unfortunately that led to quite a few foreclosures in our neighborhood some of which were bought by investors as rentals including the houses on either side of us. They have kept the properties decent looking, however. They are in high demand and command rather high monthly rental rates. ($1600 - $2000).
Anyhow, be able to recognize a bubble. Sometimes houses just appreciate but it's usually in response to something. Population increase putting pressure on supply or local investment in the area like schools, parks or conservation easements. But, if housing prices are greater than the equation of Land + Cost of Construction, it might just be a bubble, so wait to buy until the bubble pops. The only exception might be retirees who can sell high and move down to a smaller house or even a vacation home they've bought previously. Then "Sell high!" might be the rule to follow!
I hope nobody here got caught in the bubble because we watched a lot of people crash and burn in our area. And they weren't speculators, this was their primary home.