Real Estate Bubble
A financial bubble occurs when the cost of an asset
accelerates well beyond its actual value. This occurred
with the tech boom in the '90s when stock prices of
internet startups climbed before anyone knew what the
companies truly had to offer. When it became clear that
the value of most of these businesses was far lower
than believed, the bubble burst, and the American economy
is still feeling the effects.
The current real estate bubble is a result of low interest
rates, certain lending practices such as interest-only
loans, and the weak performance of the dollar on
the world market. In fact, the stock market problems
that resulted from the tech stock bubble have opened
up more investment capital for real estate, which has
contributed the real estate bubble, as well.
Will the Real Estate Bubble Burst?
It is believed that all bubbles burst. The fact that
real estate prices are climbing far faster than people's
incomes is an indication that this real estate bubble
may not be an exception. However, there are experts
who believe the real estate bubble will undergo more
of a deflation than an actual burst. That is, the process
will take longer, so people will have more time to make
easy money on the real estate market and the panic will
not be as great as the one that accompanied the stock
market recession.
Some people in the real estate industry are quick to
point out that the real estate bubble does not have
that great of an effect on regular home buyers. They
point out that the return on a home is not necessarily
purely financial. Most people, after all, do not buy
houses solely to make money in the future; they buy
houses to live in.
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