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How does a housing bubble work ?

A situation where there is an extremely huge demand for real estate is called a housing bubble. This situation is created from artificial means like decreasing the interest rate. A housing bubble is possible to start an economic boom, but it can also end in times of economic crisis. The main thing about housing bubble is to understand what creates it, and how to fight it and how to ease from any fall out it may produce.

One of the main reasons for a housing bubble is the national banks’, such as the Federal Reserve in the United States, to spur the economy by lowering the interest rates. For some, this situation creates an interest of buying a real estate due to the cheaper price. This makes the demand for real estate to climb dramatically. Furthermore, buyers may purchase a real estate for short term uses and plans to resell it once the price increase.

The benefits of housing bubble are not only for real estate, it can also carry over into some other areas. A housing bubble can also help manufacturers of home appliances, construction companies, electronic and other products in which, the money gained infuses the economic state. Even though housing bubble is just a short-term situation, it can develop a good situation for the economy.

Housing bubble usually ends when the interest rates start to climb back up. Bankers normally offer low interest rates, which makes it cheap to borrow for people to purchase a real estate. Therefore, if borrowing money ends up being too expensive, the demands for real estate will also start to subside. After the housing bubble, many things will start to happen like request for new mortgage starts to drop and house sales. Some of the house being sold came from the housing bubble itself.

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