House bubble

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A 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. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline.

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. The financial crisis of 2007–2010 was related to the bursting of real estate bubbles around the world, which had begun during the mid 2000s.


As with all types of economic bubbles, whether real estate bubbles can be identified or prevented is contentious. Bubbles are generally not contentious in hindsight, after a peak and crash.

Within mainstream economics, some argue that real estate bubbles cannot be identified as they occur and cannot or should not be prevented, with government and central bank policy rather cleaning up after the bubble bursts.

Others, such as American economist Robert Shiller of the Case-Shiller Home Price Index of home prices in 20 metro cities across the United States, indicated in May 31, 2011 that a "Home Price Double Dip Confirmed" and British magazine The Economist, argue that housing market indicators can be used to identify real estate bubbles. Some argue further that governments and central banks can and should take action to prevent bubbles from forming, or to deflate existing bubbles.



Real estate bubbles in the 2000s

By 2006, several areas of the world were thought to be in a bubble state, although this contention was not without controversy. This hypothesis was based on observation of similar patterns in real estate markets of a wide variety of countries. This includes similar patterns of overvaluation and excessive borrowing based on those overvaluations.


The subprime mortgage crisis, with its accompanying impacts and effects on economies in various nations, has given some credence to the idea that these trends might have some common characteristics.



References:

1.http://en.wikipedia.org/wiki/Housing_bubble


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