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
Degree of construction of residential property measured in number of units or dollar value. ...
Amount charged for each unit of rental property. An example of a unit might be square footage of space or an apartment. ...
Any lease with a specific starting time and a specific ending time. ...
Written agreement between two or more parties to extend the terms of a document. ...
In general terms, a licensee means a person or legal entity who has received authorization or permission to perform a particular activity through another party (the licensor in our case.) ...
Also know as Fannie Mae, the FNMA accept bids from approved lenders as to the amount, price and terms wish to sell Fannie Mae. Upon deciding how much money it will spend during a given time ...
A lender can be a private individual, a private or public group, or an institution that loans funds to a person or business that the lendee would later repay with interest in most cases. In ...
A fiduciary intermingling a clients funds or one who is entrusted with funds and groups them with those of his own. This practice is considered a breach of a fiduciary relationship and a ...
Same as term resale proceeds: Net amount received when property is sold. It equals the selling price less outstanding mortgage balance less all costs incurred in connection with the sale. ...
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