Real estate bubble

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AKA: property bubble, housing bubble

A real estate bubble is a economic bubble that occurs in local or global real estate markets. Characterized by rapid speculative increases in valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic elements. Any type of economic bubble is difficult to identify except in hindsight.

In attempting to identify bubbles before they burst, economists have developed financial ratios and economic indicators to be used to evaluate whether homes in a given area are fairly valued.

The price to income ratio is the basic affordability measure for housing in a given area. The deposit to income ratio is the minimum required downpayment for a typical mortgage, expressed in months or years of income. The Affordability Index measures the ratio of the actual monthly cost of the mortgage to take home income. The Median Multiple measures the ratio of the median house price to the median annual household income. The housing debt to income ratio or debt-service ratio is the ratio of mortgage payments to disposable income. The housing debt to equity ratio (not to be confused with the corporate debt to equity ratio), also called loan to value, is the ratio of the mortgage debt to the value of the underlying property; it measures financial leverage. The ownership ratio is the proportion of households who own their homes as opposed to renting. The price-to-earnings ratio or P/E ratio is the common metric used to assess the relative valuation of equities. The price-rent ratio is the average cost of ownership divided by the received rent income (if buying to let) or the estimated rent that would be paid if renting (if buying to reside). The gross rental yield, a measure used in the United Kingdom, is the total yearly gross rent divided by the house price and expressed as a percentage. The occupancy rate (opposite: vacancy rate) is the number of occupied units divided by the total number of units in a given region.

Other sectors such as office, hotel and retail generally move along with the residential market, being affected by many of same variables and also sharing the effect of booms. Therefore this article focuses on housing bubbles and mentions other sectors only when their situation differs from housing.
Real estate bubbles are followed by severe price decreases, also known as a house price crash, that can result in many owners holding negative equity (a mortgage debt higher than the current value of the property). As with any type of economic bubble, it is difficult for many to identify except in hindsight, after the crash. The crash of the Japanese asset price bubble from 1990 has been damaging to the Japanese economy and lives of many Japanese who have lived through it, as is also true of the recent crash of the real estate bubble in China's largest city, Shanghai.

The health of the British residential property market is seen as an important factor in the British economy.

The New Zealand Government tried to stop house prices going up so dramatically, and talked about incorporating a tax on fixed mortgages.

Often the government has measures to stop house prices rises, by setting taxes, interest rates, regualtions. Yet often suppressing the price, can just cause an economic downturn, or store up the issue for the future.