Finance

What Is a Real Estate Bubble?

A Real Estate Bubble sometimes known as a housing bubble is an occurrence that usually involves the pricing of housing rising rapidly due to the result of an abnormal increase in demand and limited level of supply.

In most cases, the rise in pricing of housing may move so fast that it eventually bursts. In this case, we call the process a “Bubble”.

The real Estate Bubble is a phenomenal event and it occurs in most parts of the world due to some reasons.

The biggest Real Estate Bubble occurred between 2007 and 2010.

Hence, in this article, we will be looking at the definition of the Real Estate Bubble, the signs and causes of the Real Estate Bubble, and what happens when the bubble bursts.

Definition of Real Estate Bubble

It is rare to find such a condition but if it eventually happens it may be terrible in the sense that homebuyers will have to pay outrageously for a house even twice or twice the usual price.

The Real Estate Bubble is a critical market situation whereby there is an increase in the demand of housing and the supply diminishes drastically leading to high pricing on housing and leaving buyers with no choice but to experience the effects of inflation in the sector.

What Are The Causes of the Real Estate Bubble?

When talking about what can cause a Real Estate Bubble you should consider a lot of factors and sometimes these factors are inevitable.

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The real Estate Bubble can be caused by several factors ranging from an increase in demand to a decrease in supply and then low mortgage rates.

Other factors include widespread investor speculation and a  high buying rate.

All the above-mentioned factors are capable of causing a Real Estate Bubble and hence, increasing the pricing of housing.

An increase in demand encourages high buying rate thereby making house buyers want to buy more and in the case of a high buying rate the source for supply drastically diminishes because demand is always greater than supply.

However, the case of the Real Estate Bubble becomes real and definite since demand is way much higher than supply.

   What Happens if The Bubble bursts?

The real Estate Bubble is a critical market condition and it can affect the housing sector and several other areas of the economy.

Homebuyers most especially will have to be faced with challenges when a Real Estate Bubble occurs but in a condition when the bubble bursts that certainly means their will be a drastic fall in housing price which means homebuyers who earlier on bought houses during the Real Estate Bubble state of the economy will have no choice than to sell their houses in most cases.

   List of Places That Have Faced Real Estate Bubble

Below, is a list of several parts of the world that have faced a Real Estate Bubble in history.

Chinese Property Bubble – 2005- 2011.   Danish Property Bubble- 2001-2006.   Irish Property Bubble- 1999-2006.   Japanese Property Bubble- 1986-1991.   Polish Property Bubble- 2002-2008.   USA Property Bubble – 1997-2006.

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