What is a housing bubble?

A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase.

Can speculators create a housing bubble?

Speculation can further drive the housing market away from fundamentals, though it doesn't have the force to create a housing bubble on its own. When real estate prices start climbing, speculators might see an opportunity to ride that wave and buy into the real estate market.

How can policymakers prevent a housing bubble from forming?

By identifying these signs early, policymakers can take steps to prevent a housing bubble from forming. In conclusion, a housing bubble occurs when property prices increase rapidly, followed by a sudden decrease, and it can have significant impacts on the real estate market and the broader economy.

Are irrational exuberance and price bubbles wrong?

They're not wrong. Historically, the housing market has not suffered from the frequent price bubbles and extreme volatility that are seen in other investments. However, housing markets can go through periods of irrational exuberance followed by lower demand and lower prices.