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
Loan with a significant down payment with the balance being paid in equal periodic payments over a short time period. There is no interest charge. An example is when a seller of real ...
Early American style 1 story house with a steep gable roof covered with shingles. The bedrooms are on the first floor, but the attic is often finished and made into additional bedrooms. ...
Exchange of products or property between individuals in which no cash is paid. ...
percentage relationship of a specific part of property to the whole property. An example is the square footage of one office to the square footage of all offices in an office building. ...
Right to peaceful enjoyment of property while the legal title is held by one person and the property is used by another. ...
Borrower's right to redeem his property by immediately paying off the loan balance and any related costs. ...
Method of constructing a brick, block, or stone wall using mortar in various overlapping patterns. The brick pattern is extremely important in terms of adding strength and stability to the ...
Bond collaterized by real assets. Two kinds of mortgage bond are senior mortgages and junior mortgages. A mortgage bond may have a closed-end provision that prevents the firm from issuing ...
The portion of a structure providing the primary ground support. Foundations have a foundation wall forming a permanent below grade retaining wall. All modern foundations rely on concrete ...
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