What Is A Housing Bubble ?
Understanding what is a housing bubble is not that difficult. Basically it is an increased demand for houses which is usually created due to artificial means like giving mortgage loans to potential buyers with low interest rates. |
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Housing bubble can stimulate economic growth in the country while it lasts. However, it is an unsustainable model as it ultimately leads to the bubble bursting and thereby causing economic crisis.
It is necessary to understand why a housing bubble is created. It is only then will experts get the answer to fighting it, or at least easing its repercussions.
One of the main reasons behind the creation of a housing bubble is the need by a national banking system to lower the nation's interest rate in order to give impetus to the economy. Once the interest rates are lowered, potential buyers are interested in purchasing houses and real estate as a form of investment. As a result of the demand, the real estate market gets artificially inflated. This further spurs the demand leading to an increase in the house and real estate prices. Because of this increase in prices, the property value also increases. This prompts speculators to enter the market who are looking to make short term profits by buying and selling real estate and properties.
Since the above described scenario is unrealistic and unsustainable, the demand for the houses and real estate starts declining, or on the other hand, the demand can stagnate. This leaves a surfeit of properties in the market that all of a sudden no ones wants leading to a drastic and dramatic fall in the prices. This leads to the bursting of the housing bubble.
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