US Economic Trends Real Estate Housing Bubble
Home ownership is a part of the much-touted American Dream and the enthusiasm of owning a home is extremely high in the U.S. Since 2001, the housing bubble in America has either been real or has been hypothesized. Again, since 2001 there has been an extraordinary rise in housing prices in many areas of the United States, especially the more populous areas such as California, New York, Florida, Boston and Washington. This has led many economists to believe that a housing bubble exists in these parts of the U.S. They argue that this bubble has been caused by the low interest rates and a rage amongst buyer to buy houses. The housing bubble has been compared to the stock market or the dot-com bubble of the 90s. However, there are other economists who feel that these price increases has to do with limited supply and increased demand due to demographic changes.
A housing bubble is characterized by rapid valuation in real estate prices. These valuations reach such levels that they become unsustainable relative to average incomes, price-to-rent ratios and other indicators of affordability. This is followed by a decrease in prices leaving many home owners with negative equity, a mortgage debt higher than the value of the property. A housing bubble may only be identified in hindsight after a market correction.
Since the 2001-2002 recession, the increase in home valuation helped in the recovery of the country. The large majority of the people who were spending money at that point came from areas where the increase valuation took place. This helped people to lower the mortgage payments on account of lower rates and withdraw the equity from their houses as the value of the houses increased.
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