Real Estate Bubble
Definition of "Real Estate Bubble"
What Is a Real Estate Bubble?
One definition for a real estate bubble is the fast increase in prices, usually driven by investors and speculators in major urban areas. Properties are usually mispriced or overvalued over long periods, and as the prices cross the sustainability threshold, the bubble may burst, bringing prices down, to more affordable values. By definition, real estate bubbles are fluctuations in prices, so they generate a sinusoidal graph. The sad part is that nobody knows when the next inflection point will shake the real estate market.
Indicators That Predict a Real Estate Bubble
Low interest rates pour easy money into the market, and many take advantage of them to become homeowners. The increase in demand generates an increase in prices. The only thing that it is not very clear is the number of buyers who are only speculating and investing, without the intent to ever live in those real estate properties. The more investors and speculators in an area, the higher the chance of a real estate bubble.
According to a report issued by UBS, the risk of a real estate bubble was the highest in the following six cities: Hong Kong, Munich, Toronto, Vancouver, Amsterdam, and London. In the United States of America, this phenomenon is more likely to occur in San Francisco, Los Angeles, New York, and Boston.
Home price indexes - a good indicator of the national trend in house pricing. There are a few house price indexes available: S&P/Case-Shiller U.S. National Home Price Index, S&P/Case-Shiller 20-City Composite Home Price Index, or S&P/Case-Shiller CA-Los Angeles Home Price Index and the like. These indexes are also graphically represented. A long increasing slope may suggest a real estate bubble and a fall in prices should be expected. By analyzing the trends, this could be approximated in time.
Price to rent ratios are also an indicator of real estate bubbles. From an investor’s standpoint, the higher it is, the faster the investment will be recovered. But buying a property with a high price-to-rent ratio may be more expensive. From a homebuyer’s point of view, a lower ratio indicates that buying is cheaper and wiser. According to SmartAsset, the cities with the highest price-to-rent ratio for a $1,000 rental are San Francisco (45.88), Honolulu (40.11), and Oakland (38.5).
Popular Real Estate Terms
Same as term marginal land: Land that has poor income potential, usually used in an agricultural sense meaning that the land is untellable, has poor access, is extremely steep, has suffered ...
There’s a lot of confusion regarding the hazard insurance definition. Many people think it’s a synonym for homeowners insurance but they’re wrong. Hazard insurance is ...
Work required as a court judgment because of a crime committed. ...
Span of time a rental agreement is free to the occupant. A landlord may offer this as an incentive to stimulate rentals. For example, an owner of an office building may provide a free ...
Window(s) situated on top of a structure to furnish air and light for the inside. ...
Buying more house than a buyer can afford based on his or her income. ...
Person leaving from work to spend time in leisure activities. pay in full the balance on a debt either at or before the maturity date. Penalties may be assessed on prepaying a mortgage. ...
Examination of the financial records of a business to uncover errors and other irregularities. Involves looking at source documents to determine the legitimacy of transactions. An ...
Just to be clear: an Open house is not when you invite friends over to meet your new house. At least not in the real estate world.When you hear someone talking about an Open House, they ...
Have a question or comment?
We're here to help.