When most people read the term “real estate bubble” or “housing bubble,” they likely think of the 2007-2008 financial crisis. However, the common man doesn’t know much about bubbles beyond their relationship to the recent economic collapse.
In a bubble, the price of an asset — be it housing, stocks or even tulip bulbs — is high because investors believe the selling price will be high or even higher tomorrow. Therefore, demand and price for the asset both increase. The problem is that the demand eventually decreases as supply increases, which leads to a decrease in prices and POP — the bubble bursts, sending shock waves throughout the economy.
Today, most experts agree that, on a national level, we are not in a real estate bubble. The absence of nationwide or statewide housing bubbles doesn’t mean they’re not forming, however, or that they don’t already exist within some states on a more local level.