What is a Real Estate Housing Bubble?

Real estate housing bubble, housing bubble and property bubble are all the same thing, only the name varies. It is a type of economic situation which resembles a bubble in the truest sense. As a bubble is inflated rapidly and it sustains for a very short period before bursting, the economic situation related to housing or property acts in the similar way. The prices of the real estate properties increase rapidly creating a boom in the business before suddenly bursting to create emptiness. The valuation that makes a rapid upward turn reaches a peak that is not supported by the other economic factors like growth of income and suddenly the values falls. This situation is a cycle that almost all the countries have suffered at some time or the other.

The question is now being raised because after a sudden rise in the property prices in the second half of 2006, the market saw a sharp decline that brought down not only the prices but companies investing in real estate. A close look at the figures will reveal that the losses, if calculated together, can run up to the trillions. It is an obvious result of uncharted growth that is not sustained by the other economic factors. It was somewhat a mad race that was bound to end in casualties. But the fall was not uniform everywhere. It has proved that the higher they rise the harder they fall and this was the case with the big property economies. The property prices vary from place to place and the fall is not sharp everywhere and at some places the prices, after some slide were holding.

One of the reasons behind bursting of the real estate housing bubble is the lack of demand or production outgrowing the demand. The fall in the prices was somewhat due to the market clearing of its stock. The dealers hold up when the prices fall in the hope that the market will rise. But the market never showed any interest and the sellers were held up with their investments rotting in the form of properties. So they turn to clearing their stock and a further fall in the prices ensue. This cyclic order results in the sharp drop that one call the bursting of the bubble. Sometimes this results from the willing ignorance of the warning signals that the economy throws up from time to time.

Every economy goes through a process where the demand forces the production and the market gains until the production exceeds the demand. It is not that the demand is not there. The fact that thwarts the demand is the lack of affordability. This is the extreme point of the bubble. A simple prick there bursts it instantly resulting in the massive falls that usually accompany any sharp rise. But the good thing that follows a real estate bubble burst is the actual valuation of the property market. It can be called learning from the mistake and it in turn solidifies the property market by removing the froth that accompanies any boom.