As with other medium and long range economic trends, accurate prediction of future bubbles has proven difficult. Real estate bubbles can be difficult to identify even as they are occurring, due to the difficulty of discerning the intrinsic value of real estate. Speculative bubbles are persistent, systematic and increasing deviations of actual prices from their fundamental values. Ratio of Melbourne median house prices to Australian annual wages, 1965 to 2010Īs with all types of economic bubbles, disagreement exists over whether or not a real estate bubble can be identified or predicted, then perhaps prevented. The financial crisis of 2007–2008 was related to the bursting of real estate bubbles that had begun in various countries during the 2000s. Prices decline slower because the real estate market is less liquid. A recent laboratory experimental study also shows that, compared to financial markets, real estate markets involve more extended boom and bust periods. Housing price busts are less frequent, but last nearly twice as long and lead to output losses that are twice as large ( IMF World Economic Outlook, 2003). Historically, equity price busts occur on average every 13 years, last for 2.5 years, and result in about a 4 percent loss in GDP. īubbles in housing markets are more critical than stock market bubbles. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below. This period, during the run-up to the crash, is also known as froth. A land boom is a rapid increase in the market price of real property such as housing until they reach unsustainable levels and then declines. ( Learn how and when to remove this template message)Ī real-estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets, and it typically follows a land boom. Please help update this article to reflect recent events or newly available information.
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