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
Any walls constructed without using concrete or mortar. Drywall materials include sheetrock, gypsum, plywood, Styrofoam, and pressed fiver. See also drywall construction. ...
Ownership of a real estate in which at least two or more individuals have equal ownership. If a member of the group dies, the property is transferred to the survivor (s), for example, a ...
Factor employed by real estate agents or appraisers to determine the change needed in operating income to obtain a desired rate of return. It is used to evaluate income-producing property. ...
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 ...
Investigation into the causes of death. A post mortem is normally performed by a public coroner. It might be performed to determine the cause of death of an apartment house tenant. ...
Tax concept whereby income not actually received is considered to be constructively received by a taxpayer and thus must be reported. ...
A Vanilla Shell - also known as a Vanilla box, white box or whiteboxing – is something very common in commercial real estate and growingly common in residential real estate. In many ...
The down payment on the price of a real estate. For example, it is customary to make a down payment of 10% of the value of a real estate parcel upon signing the purchase agreement. ...
Broker employed by and therefore loyal to the buyer. ...
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