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In real estate markets, a housing bubble is a phenomenon when prices of houses rise quickly to unsupportable heights before abruptly plummeting. It occurs when there is a rush in housing demand that exceeds the number of open houses, resulting in an increase in home prices.
People start making significant real estate investments as a result, including purchasing and selling homes, which raises values even further. This causes a cycle of speculative buying when people purchase homes not to live in them but rather to resell them for a profit.
Yet eventually, the market reaches a point of saturation, and home demand starts to decline. A decrease in home prices results from an increase in the number of available properties. This decrease in property values may cause panic, which could result in a quick sale of homes, further bringing down prices.
The economic repercussions of a housing bubble burst can be extensive, with consumer confidence declining, investment levels declining, and economic growth falling. The housing bubble and subsequent real estate market collapse in the United States in 2008 played a significant role in starting the financial crisis.
