What is a real estate bubble or housing bubble?

Housing Bubble Bubble is an increase in the price of an asset which can't be justified by the fundamental supply and demand factors for the asset. Housing bubble occurs when there is an enhanced demand for real estate. Way's to create an artificial demand in real estate, lowering the interest rates of banks Quoting unreasonably high pieces creates an impression of high prices in region Posting high bids by builders by impersonating them as buyers If buyer is interested to buy property project your property as a great deal These are some key elements which creates a housing bubble.  Read more about http://www.commonfloor.com/guide/property-bubble-a-myth-32213.html

1. Most people buy homes by borrowing money. 2. Most people buy the best home they can based on the amount they qualify to borrow (which history shows can be different from what they "can afford"). 3. The cost of borrowing varies over time based on willingness of lenders to lend. 4. Therefore the prices of homes vary over time based on the availability and terms of home loans. 5. During periods of extremely loose lending the top of a cycle can become a bubble. To figure out where we are in the cycle, ask yourself whether you expect lending to tighten or loosen from here. Will the US see rates rise from here, or will we follow Japan to 1.5% rates on 35 year mortgages. Many will want to dismiss this simple explanation, but every cycle in the history of housing in the US can be shown to be driven by changes in lending practices (intro of: 30 year mortgage, adjustables, interest onlys, and the whopper - qualifying buyers on option payment of pay option arms). If you do the math on the change each of those could have on prices, it perfect matches the change we did see in prices. The only significant movement in home prices that wasn't credit driven was the drop of home prices in the 1910's which was instead due to innovation in building techniques that dramatically lowered the cost of building a home. Something I think we are overdue to see again.

A type of asset bubble fuelled by: Unrealistic private market expectations, as was the case with the dotcom bubble. I.e.  I recall buying a stock developing an app which was going to manage the restocking of refrigerators in hotels. Not because I believed in intelligent refrigerators but because everything had appeal. I. E.  Most buyers were believers and they trumped critical thinkers like me. Private bubbles might appear unhealthy but they are actually directing a lot of resources into areas of great potential. There is understandably a requirement for rationalisation. Facebook and google are a testament to the reasonableness of those early expectations, however those expectations were refined. Other bubbles are created by governments easing credit to create an expansionist economy, offering subsidies, govt contracts,  research grants. Observe that govt bubbles are universal in "raising tides" or lifting boats; whereas private bubbles are particular to certain sectors. They can also be industry or project focused. The Ord River Scheme in WA;  which was finally developed for irrigation after 3 decades. Ethanol subsidies that draw off food resources for an inefficient crop based fuel.  The current bubble has seen interest rates fall to near zero; not because credit is risk free (or the prospects of inflation zero), but because their is no consequence to the US govt and Federal Reserve. It's not their money getting 0.5% or negative real yields in some countries. The reason the current market is not a bubble is because the prudential standards of the banks are being dictated by the govt. Banks are actually lending modestly however concerns about high property prices have resulted in high rates of debt repayment, causing subdued economic activity, placing the burden on govt debt growth/spending. The reason this is not a problem is because for the next decade interest rates will remain low because inflation will remain low. Thereafter it depends on how people behave in the next decade. House prices are high, not because there is a high demand for property, buy because asset yields are low. It's finance; not economics. Economists are understandably confused because they don't get finance and they tend to be rationalists, so they don't look at data. They assume because asset prices are high, there is a boom being led by demand. Yet no one is spending in the real economy. Markets are rather subdued.

Traditionally, housing markets are not as prone to bubbles as other financial markets due to large transaction and carrying costs associated with owning a house. However, a combination of very low interest rates and a loosening of credit underwriting standards can bring borrowers into the market, fueling demand. A rise in interest rates and a tightening of credit standards can lessen demand, causing a housing bubble to burst. Other general economic and demographic trends can also fuel and burst a housing bubble.

A rapid increase in the price of real estate property is called real estate bubble and when the rates of houses rises very vastly then it is called house bubble.Bubbles in housing markets are more critical than stock market bubbles.The prices always rises after certain duration and also due to nearby development work and area; people usually prefer to invest in such locations but they don’t get much advantage as the location is fully developed and the price will now slowly get increases.For investment, for example a person is buying http://chaitanyapromoters.in/ then it is more necessary to choose the developing area not the developed area, so that he can get profit from investing in that land and plot.