What is a Housing Bubble?

What is a Housing Bubble?

Posted by Tara Kennedy on Wednesday, June 17th, 2020 at 12:01pm.

What Is A Housing Bubble?


A housing bubble means that there is an increase in demand but a decrease in supply. In this case, fewer houses are available compared to the number of people looking to buy.

What happens during a housing bubble?
When a housing bubble occurs, house prices increase significantly. The home that you thought was reasonably priced is now priced considerably higher.

Why does a housing bubble happen?
There are a few things that spark a housing bubble. However, all aspects will play a role in making the housing bubble happen. 

- The population increases significantly.
- Low interest rates to make homes more affordable or mortgage products that are extremely attractive to home buyers.
- Risk taking as a borrower.                                                                                                                                                                                                - Increase in overall economic activity.  
- Not having a complete understanding of finances.
- Risky behaviour by home buyers or property investors all fueled by the belief that the housing bubble will be sustainable. 

Bursting the housing bubble
Housing bubbles will not last forever because markets are constantly changing. One of the most unfortunate things is that people believe that the increased demand and the increased prices will continue to be this way in the future. Unfortunately, the housing bubble can turn the other way quickly and with little notice. As fast as the increase in demand happens, so can a decrease.

Ways that the bubble bursts:
- Increase in interest rates.
- Less disposable income available.
- Decrease in the economy.
- Decrease in the demand for homes.

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A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and typically follow a land boom. A land boom is the rapid increase in the market price of real property such as housing until they reach unsustainable levels and then decline.

 

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