What Causes  a Real Estate Bubble?

What is a real estate bubble?

is a type of economic bubble that occurs periodically in local or global real-estate markets, and typically follow a land boom

Bubbles in housing markets are more critical than stock market bubbles

Historically,  equity price busts occur on average every 13 years, last for 2.5 years, and result in about 4 percent loss in GDP

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Real estate bubbles can be difficult to identify even as they are occurring, due in part to the difficulty of discerning the intrinsic value of real estate.

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The price of housing, like the price of any product or service in a free market, is driven by the law of supply and demand.


So, What are the factors to increase the demand?

1.  A rise in general economic activity and increased prosperity

2. A demographic segment enters the housing market

3. Low mortgage rates make homes more affordable

4. Easy access to credit

5. Speculative and risky behavior by home buyers and investors fueled by unrealistic and unsustainable home price appreciation estimates

A bubble finally bursts when excessive risk-taking becomes pervasive and prices no longer reflect anything close to fundamentals.

Why Does a real estate Bubble Burst?

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