Reviewed by Aug 27, 2020| Updated on
A housing bubble is also referred to as a real estate bubble. It is a build-up of prices of housing which is fueled by speculation, demand, and exuberant spending to an extent which causes it to collapse. Real estate or housing bubble generally begins with a rise in demand, in the scenario when the supply is limited, which takes a comparatively prolonged time to restore itself and rise.
Speculators will pump money into the market, which in turn drives up the demand. Meanwhile, the demand reduces or reach saturation and gets stagnated; at the same time, the supply rises, causing a steep fall in the prices. This will lead to a bubble burst.
Breaking Down Housing Bubble
A housing or real estate bubble is an event which does not last for long. It lasts for a few years. Generally, it is driven by something which is outside of the norms, such as speculation, demand, excess liquidity, high levels of investment, all of which has the potential to cause home prices to go unsustainable.
It can lead to a rise in demand against the supply. As per the International Monetary Fund (IMF), housing or real estate bubbles can be less regular than equity bubbles. However, they will generally last twice as long.
Effects of Housing Bubbles
Housing or real estate bubbles will not only result in a significant realty crash, they also have a telling effect on individuals of every neighbourhood, class, and the overall economy.
These bubbles may force individuals to look for a way to clear off their mortgage or home loan through the different program. It may also lead them to access funds in their retirement accounts in order to be able to afford to reside in their respective homes.
Housing or real estate bubbles are historically the reason why individuals will end up losing most of their savings.