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What are ‘Real Estate Bubbles’ and why do they occur?
Real Estate Bubbles are an emotional overreaction to market trends that may have little or nothing to do with the real market value of a home. When prices are high, investors want to jump into the game believing that prices will continue upwards and that they will reap a profit. When prices decrease, it causes a panic and frightens investors out of the market resulting in the ‘bubble bursting’ or ‘price correction’. It is important to understand that ‘Bubbles’ can occur even in a healthy economy.
Bubbles are not exclusive to Real Estate. The Stock Market is a prime example of what can happen in a ‘bubble’ situation. Many investors have and do make a significant amount of money trading inside a bubble. The key is as with any investment is getting out at the right time but unfortunately financial losses are not uncommon. |
Primary factors that determine a ‘Real Estate Bubble’
- 1. Rapid increase in pricing monthly
- 2. Houses sell quickly and often before they are even placed on the market
- 3. Bidding wars result in sales and owners often receive more than they ask for
- 4. Limited inventory available in an acceptable price range
- 5. Builders add inventory as fast as possible
- 6. Buying on speculation and purchasing before homes are complete
- 7. Mortgage money is readily available
- 8. Easy qualification for mortgage
- 9. Banks push home equity loans
- 10. Anything and everything sells
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Signs that a Real Estate Bubble is about to burst
- 1. High inventory of homes on the market relative to buyers
- 2. As the ratio of buyers to sellers spreads, the faster the prices drop
- 3. Homes take longer to sell
- 4. Only better quality homes are selling
- 5. Money for mortgages becomes more difficult to find
- 6. Qualification for mortgages tighten
- 7. Offers are being accepted well under asking price
- 8. Panic sales occur as last minute investors attempt to exit
- 9. Builders offer various incentives to buy now
- 10. Prices drop several months in a row until the landslide begins
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How long do Real Estate Bubbles last?
There is no exact science as to how long Real Estate bubbles last as it is dependent on many things including the severity of the situation. It is reasonable to say however that it will not be months, but rather years. History shows that Real Estate bubbles typically can correct in 1- 3 years on average however there is no exact science as each city, market and situation differs.
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We hope our site inspires you to make educated decisions, based upon Calgary's current Real-Estate conditions. Feel free to contact us with any questions you may have. 
