Sweeping economic shifts, like a rising Dow Jones or lower unemployment rates, can affect the housing market. As the number of Americans buying houses increases, the sell price that you could get for your house might go up as well. If the housing market hits booming levels, you could get nearly twice as much for your house within five to seven years of the date that you bought the property.

Rising house prices aren't always good

As a seller, there may be little better news than hearing that house prices are going up. Yet, should you be in the market to buy a new house, this upward swing could spell disaster.

What could happen if you buy a house during a housing market boom is that you could enter a mortgage agreement that has you paying more for a house than the house is actually worth. You might not realize this until after the housing market starts turning sharply in the opposite direction.

By then, it could be too late. It's this very type of housing market swing that played a key role in the development of the Great Recession. You could regret housing prices shifting too far upward even if you're a seller.

How is this possible? When housing prices rise to the point that the house prices become bloated, although you can yield a significant profit should you sell your house, you may quickly watch those profits evaporate when you buy another house, especially if every house available for you to purchase cost nearly as much as the house you just sold. This is because bloated housing costs can eventually set everyone back.

Indicators that your house is over valued

Yet, failure to yield a profit during the house sell and buy process isn't the only indicator that your house might be over priced. Following are more signs that you might have paid too much for your house:

  • Comparable housing prices show that you could get nearly double or more for your house than you paid for it less than four years ago, and yet, you have done absolutely nothing to improve your property.
  • Area houses are selling for 20% or less than what you paid for your house
  • Your house has been on the market for four months or longer
  • Lenders are not approving buyers for home loans that would cover at least 75% of the cost of homes similar to yours
  • An experienced and reputable realtor who you're working with keeps telling you that you may want to lower the price onĀ  your house
  • The sell price on your house is above the amount of property taxes that you're liable for
  • What you're asking for your house doesn't factor in damages that your house has experienced since you bought the property

When your house becomes a money sink hole

You're not the only one who doesn't want to pay too much for a house. People shopping for homes like the one you may have just put on the market also don't want to invest more in a house than the house is actually worth.

One reason for this is that the price of the house isn't the only costs that you'll take on if you buy a home. Insurance, association fees, general maintenance, property taxes and repair costs are other expenses that you could get saddled with. Several of these additional costs are directly linked to the price that you paid for your house.

Over priced homes can also place a drag on the entire housing market. This is truly an area where greed causes extensive damage. You may have to do your homework to avoid being pulled into an inflated housing market. But, you can avoid buying a house that's over priced if you practice patience.