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
An adversary hearing allows both parties to an issue to present their views. A public procedure performed by an administrative or legislative body to investigate certain matters and ...
Right of a current stockholder to maintain the percentage ownership in a real estate company by purchasing new shares on a proportionate basis before they are issued to the public. It ...
Time interval between buying a real estate investment and selling it. A sound way to determine the return from a real estate investment is over its life. For example, if land was bought on ...
The float has several meanings in the financial world and the real estate terminology. Typically, the float refers to the number of funds, represented by checks, that an institution or an ...
Property highly leveraged. An example is when a landlord buys an apartment house paying minimum cash payment down and the balance on mortgage. ...
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Generally speaking, the meaning of warehousing refers to the act of storing assets and keeping a physical inventory expecting a sale or distribution of goods at a later date. Warehousing is ...
Aerial photos are photographs taken by cameras mounted in aircraft or satellites. Aerial photos are more commonly used in the industrial Real Estate Market to get a better feel of a ...
To pass property by will to an heir. Strictly speaking, real estate cannot be bequeathed to an heir, it must be devised. However, if it becomes clear the purpose of the testator was to ...
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