Let’s say that you looked at your local market and you’ve determined that your market is indeed in a bubble. “So what?” you ask. What you need to recognize is that this bubble isn’t the source of great concern, the market correction or pullback that follows this euphoric housing bubble is. So if prices where you live have recently increased rapidly and are now starting to fall quickly and the talk among realtors and investors has shifted from a seller’s market to a buyer’s market, the bubble is deflating.

How do you react to the deflating bubble? Experienced real estate investors and industry gurus recognize that the real estate market moves in cycles and prepare for them accordingly. In the March & April 2006 edition of the AARP magazine, economist Richard Dekaser provides a sample list of overvalued and undervalued markets. At the high end of overvalued markets was Naples, Florida at 84%.

When the market pulls back in Naples, Florida, there will be opportunity for some and tragedy for others. Think about it. If the market has increased rapidly and then starts falling quickly, there will be those that bought at the high side of the market and end up with what “Wikipedia” calls negative equity. Some of those will ultimately also end up in foreclosure. Because educated investors know the real estate cycles, they will be ready to start implementing foreclosure strategies as soon as the bubble begins to deflate. Will you be ready?