A housing bubble is a run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future.
A housing bubble or property bubble (or real estate bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets, typically following a land boom.
A land boom is the rapid increase in the market price of real property such as housing until they reach unsustainable levels and then decline in a bubble. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance are answered differently by schools of economic thought. The financial crisis of 2007–08 was related to the bursting of real estate bubbles which had begun during the 2000s around the world.
Bubbles in housing markets are more critical than stock market bubbles. Historically, equity price busts occur on average every 13 years, lasts for 2.5 years, and result in about 4 percent loss in GDP. Housing price busts are less frequent, but last nearly twice as long and lead to output losses that are twice as large (IMF World Economic Outlook, 2003).
A recent laboratory experimental study also shows that, compared to financial markets, real estate markets involve longer boom and bust periods.
Please login or Register to submit your answer