Real Estate Investing Information Blog

A real estate bubble or property bubble (or housing bubble for housing markets) is a type of economic bubble that occurs occasionally in local or global real estate markets. It is characterized by rapid tentative increases in the valuations of real property such as housing until they attain unsustainable levels relative to incomes and other financial elements, followed by decreases (also recognized as a house price crash or a market correction) that can result in many owners holding unenthusiastic equity (a mortgage debt higher than the price of the property). Just like any type of economic bubble, it is hard for many to identify except in hindsight, after the crash.

The Economist magazine said that "the worldwide rise in house prices is the largest bubble in history", and real estate bubbles are believed to exist in numerous parts of the world, particularly in many areas of the United States, Great Britain, Australia, New Zealand, Ireland, Spain, South Africa, India and China. U.S. Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at a least, there's a little 'froth' (in the U.S. housing market) … it's hard not to see that there are a group of local bubbles". The crash of the Japanese asset price bubble from 1990 on has been extremely damaging to the Japanese economy and the lives of numerous Japanese who have lived through it, as is also true of the new crash of the real estate bubble in China's largest city, Shanghai.

Unlike a stock market crash following a bubble, a real-estate "crash" is typically a slower process, because sellers just choose not to sell. Historically due to inflation, prices do not fall in nominal terms; slightly they stay "flat" for a period of 3-5 years. In pick markets though, housing prices have fallen in real and ostensible dollars, such as Los Angeles during the premature to mid 1990s. Due to low inflation in the majority countries, future corrections may effect in a fall in both real and nominal house values.

Other sectors such as office, hotel and retail usually move along with the residential market, being exaggerated by many of same variables (incomes, interest rates, etc.) and also distribution the "wealth effect" of booms.