Is There A Housing Bubble?
What's the deal with this housing bubble thing? Is there one at all, or not? If so, when will it burst and what are the consequences of that happening again? We're going to look into these questions in today's article. Read on for more about the housing bubble!
What Is A Housing Bubble?
A housing bubble happens when the prices of real estate and other assets get too high for what's actually there. The price will inflate until it reaches its peak, and then everything crashes. When this happens, people lose their jobs, businesses suffer from lost revenue or bankruptcy due to lack of profit (or anticipated return on investment), investors see vast losses in market value - sometimes up to 100% loss! It becomes very difficult for these individuals and companies to recover because they're saddled with debt that grows by more than 20% annually.
Two Types Of Housing Bubble
- Speculative bubbles where investors buy homes expecting them to increase in value; which leads some homeowners not bothering with paying off loans as long as the market is going up.
- A second type of bubble occurs when lenders offer too many loans, and those people who can't afford it are given mortgages they never would have qualified for in a normal environment.
What Is Happening Now?
There seems to be speculation that we're seeing signs of a housing bubble forming right now - but there isn't consensus on this yet. Some experts seem to think that homes will continue increasing in value until 2020 or so, while others predict a crash within months as wages stagnate and interest rates rise (which would make monthly mortgage payments more expensive). There may not be any real estate crashes anywhere near what happened before because the US has taken measures such as implementing tighter lending standards after 2008; which means banks are a little more careful now.
However, this doesn't mean that there's no danger of a housing bubble. In the US, we have areas such as San Francisco and New York City where home prices are increasing at an unsustainable rate - even though wages aren't rising in line with it! The average family won't be able to afford homes like these anymore; so what do they do? They move out of state or outside the country entirely (where property is more affordable). This leads to businesses having less employees locally which means lower profits overall for them. If you've noticed any job losses lately, this may be why- people can only work if they live near their workplace and most employers don't want long commutes from their workers since it cuts into productivity during those hours.
Some Other Housing Bubble Effects
Another effect of a housing bubble is that when it bursts, lenders end up with billions in losses and they also stop lending to cover their existing debt- which causes the economy to slow down even more sharply than before due to lack of liquidity. This will have knock on effects for other industries as well; such as retail stores who rely on people having enough money left over after paying mortgages each month so they can buy things like clothes or furniture (and those are just two examples). Houses make up much of peoples' net worth - so if we see another crash because this one stays inflated too long, many families will lose everything!