Real estate bubbles have arisen and burst several times in history. They are typically triggered by a combination of factors including low interest rates, excessive lending, speculation and a general confidence in rising property prices. Here are some of the notable moments in history when housing bubbles occurred. When will the real estate bubble burst?
Real estate bubbles: similarities
Before we look in detail at individual real estate bubbles from Japan to Spain to the USA, let us first address the important question:
What can we learn from past real estate bubbles?
5 similarities between real estate bubbles
The various housing bubbles that have occurred throughout history share some common characteristics from which important lessons can be learned:
- Low interest rates
- Excessive lending
- speculation
- Misjudgment of property values
- Burst of the bubble
Low interest rates
In most cases, low interest rates have been a key trigger for the creation of housing bubbles. The reduction of interest rates by central banks meant that credit and mortgages were readily available and cheap, fueling demand for property.
Excessive lending
Excessive lending by banks and financial institutions played a crucial role. In most cases, loans were generous, often to borrowers with poor credit (subprime loans).
speculation
Real estate was often viewed not only as a place to live, but also as an investment property. Investors and home buyers speculated on rising property prices and drove prices up further.
Misjudgment of property values
In almost all bubbles, real estate was overvalued. The actual values did not correspond to the traded prices, which led to a misjudgment of the real estate market.
Burst of the bubble
Ultimately, real estate bubbles burst when market participants’ confidence breaks and prices fall dramatically. This can lead to serious economic crises.
The creation of real estate bubbles is often facilitated by low interest rates, excessive lending and speculation, with real estate often being overvalued. If these factors are not sustainable and market confidence is lost, the bursting of the bubble can trigger significant economic crises.
Let’s now take a look at individual real estate bubbles, sorted chronologically for you:
Japanese real estate bubble (1980s)
In the 1980s, Japan experienced a massive real estate bubble. Real estate prices rose rapidly and there was excessive speculation and lending. When the bubble finally burst, it led to a long economic stagnation in Japan, known as the “lost decade.”
Key figures, origins and effects:
Countries such as Sweden and Norway experienced real estate bubbles in the late 1980s and early 1990s. A combination of low interest rates and excessive lending led to soaring real estate prices, which eventually collapsed and triggered banking crises.
Key figures, origins and effects:
US housing bubble (2000s)
One of the most famous housing bubbles in history was the US housing bubble in the 2000s. Low interest rates, subprime mortgages and risky financial products such as mortgage-backed securities led to a rapid increase in real estate prices. As prices fell and many homeowners were unable to service their mortgages, the bubble burst, triggering the global financial crisis of 2007-2008.
Key figures, origins and effects:
Spanish real estate bubble (2000s)
Spain also experienced a real estate bubble in the 2000s. Real estate prices rose sharply, fueled by readily available credit and a large construction industry. When the bubble burst, it had a serious impact on the Spanish economy.
Key figures, origins and effects:
Chinese real estate bubble (2000s to present)
China has experienced a sustained real estate bubble since the 2000s. The Chinese government has repeatedly taken measures to curb price increases and reduce the risk of a bubble forming, but the problem remains.
These examples show that housing bubbles occurred in different countries and at different times, but they often share common characteristics such as low interest rates, excessive lending, and speculation. If these factors are not sustainable and market participants’ confidence breaks, real estate bubbles can burst and cause significant economic turmoil.
Key figures, origins and effects:
When will the real estate bubble burst?
Read more about the topic here:
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2023-09-20 23:48:57
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