Since the early 2000s, everyone from analysts to experts predicted the burst of the housing bubble. So, even contestants on a game show could have trouble quickly answering the question regarding the date. The bubble didn’t actually burst until late 2007. Typically, a burst in the housing market occurs in certain states or regions, but this one was different. It happened across the entire US.
What Lead up the 2007 Housing Bubble Burst?
Traditionally, the housing market does show signs that it’s in a bubble and headed for a little trouble. For example:
- Starts with an increase in demand
- The increase is coupled with a limited supply of properties on the market
- Spectators, who believe in short-term buying and selling (known as flipping), enter the market. Other factors such as loosened credit underwriting standards may bring in borrowers who couldn’t afford property could be included in the increase.
- Demand increases even more
- The market undergoes a shift. Demand decreases or remains the same as the housing market sees an increase in supply.
- Prices Drop
- Housing bubble bursts
The same scenario occurred leading up to late 2007. While the housing market grew in the bubble, property was often selling at overvalued prices from 2004 to the year before the burst. The property price actually peaked in the early months of 2006. As the year went on, prices began declining along with sales. Although prices hit a low in 2012, the largest dip happened in 2008.
The Other Side of the Bubble
Of course with anything there is a bright side and the housing bubble definitely has its bright side. Unlike other financial markets like the stock market, the housing market is traditionally not prone to bubbles or bursting bubbles. The reason for this is because there is such as large cost associated with owning property.
Another bright side includes buyers. Buyer confidence assists any recovery. As consumers become more confident, they typically choose to stop renting house or apartments and start owning property. Ultimately, any bubbles in the housing market aren’t possible when Americans are enthusiastic and optimistic about the housing market. Although people may not be ready to declare the housing marketing totally cured of the burst, more Americans are taking a serious look at owning property. This entails becoming credit worthy and understanding what it takes financially to buy, maintain and keep property.
Want to learn more about the home buying process now that the bubble is gone and it's a buyer's market? Download "The Essential Guide to Buying Your First Home" and get started.
(popped bubble: Flickr user N1NJ4)