What is a Housing Bubble?

What is a Housing Bubble?

Posted by Ryley Trenchuk on Thursday, December 20th, 2018 at 7:20pm.

The housing bubble simply means that there’s an increase in demand but a decrease in supply. In this case, fewer houses are available compared to the number of people looking to buy.

What happens during a housing bubble?  

House prices increase significantly when a housing bubble occurs. The home that you thought was reasonably priced is now priced noticeably higher.

Why does a housing bubble happen?

There are a few things that tend to ignite a housing bubble. Though, all aspects will play a role in making the housing bubble happen. 

  •        Increase in economic activity.
  •        Population increases significantly.
  •        Low interest rates to make homes buying attractive to home buyers.
  •        Higher risk taking as a borrower.
  •        Not having a complete understanding of finances.
  •        Risky behaviour by many home buyers and property investors activated by the belief that the housing bubble will last.

Bursting the housing bubble

The housing bubbles doesn’t last forever mainly because markets are constantly changing. One of the most unfortunate concepts is people believe that the increased demand and the increased prices will continue this way in the future. Unfortunately, the housing bubble can turn the other way around quickly and with virtually zero notice.  Just as fast as the increase in demand happens, so can a decrease.

Ways that the bubble bursts:

  •        Increase interest rates.
  •        Less disposable income available.
  •        Decrease in the economy.

Decrease demand for homes.

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