What is a "Bubble" in a market? Will real estate ever go back up again?

Question

What is a "Bubble" in a market? Will real estate ever go back up again?

Answer 1

If you got three economists together, they'd probably give you six definitions of a market bubble.  Here's a simple way to look at it.

A market bubble exists when people buy an asset in the belief that they can quickly sell it to someone else at a higher price, without regard to its fundamental value.  In these circumstances, people don't care how much they pay, because they think there will be someone else who will pay more.  That is economically irrational, since the cost you pay for an asset ultimately does matter (something that the million plus homeowners in foreclosure have learned the hard way).

Real estate will eventually recover.  But eventually could be some years from now.  And if you mean when will real estate prices recover net of inflation, it could be quite a few years from now.

Answer 2

If real estate goes up again wont be due to a shortage of land. The US is a huge place.

Back to the question, a bubble is a situation where the market value of something, stocks, houses, commodities, goes up and for no other reason than the belief the prices will continue to go up forever. Ultimately the price crashes to "normal levels" and the people who bought last lost money, while people who bought first are loaded. No net wealth is made during a bubble, all that happens is a transfer of money but meanwhile investors believe they are rich.

Until the price drops.

I wouldt say that all markets recover after a bubble burst. Think about housing, if prices go up 10% per year a 1 million dollar house today would be worth 100 million in 40 years. Not possible. Same thing goes for stocks, they cant increase in value faster than the economy in the long term. At a decent 5% economic growth per year the US economy would multiply 130 times in the next century. Not gonna happen.

Answer 3

The most succint way to put it is:

Every stock market rally is justified if you bought early and are making money, its only a bubble to those who bought last and lost money.

Real estate will recover, but it will take many years for it to return to valuations of just a few years ago. Remember, a 20% correction in price, requires nearly 40% to return just to even. Most markets have corrected 20%, so how long you can imagine for the real estate markets to gain 40% from current value? Several years or even a couple of decades.

Answer 4

A bubble market describes a market where prices are over-inflated without earnings or profits to support them.  Eventually, the bubble bursts, the price collapses, and a "correction" occurs.  It always does.  And yes, real estate will go up again.  The market goes down, and it goes up, and in the long run it always goes up.  Right now is a good time to buy.  Remember what they say about real estate (land) - they don't make any more of it.  Supply is set, so demand will set the price.

Answer 5

Of course it will.  Bubbles must, sadly, sometimes "pop" to return markets to more realistic levels.  It's painful, but in time the markets rebound.

Answer 6

A bubble in any market is an extended oversold condition