The Ripples And Explosions Of A Property Boom, Bubble And Collapse
The property market may always look like one of chaos and confusion but even with
unpredictable events and the patterns of the boom, bubble and/or collapse are remain
the same around the world.
Property Boom
A property boom is one where housing prices rapidly rise over a small period of
time, normally around 2 years. This time is called the seller’s market and people
who wish to renovate, move country or real estate agents love this time in the market.
People are willing to buy at or above market rates in a quick bid to secure their
home for the future.
Ripple of the Property Boom
A pattern always emerges in each property boom as to where and when each property
will rise in value. And with the case of only a few exceptions, the boom normally
starts in the city centers. The city center can only hold so many people. Once the
demand for this becomes great the prices will rise (a simple principle of supply
and demand). Once these prices rise people who can no longer afford it look directly
around the CBD. With this new influx of people the inner suburbs are now teaming
with buyers. The price rises, the ripple
continues.
Property Bubble
The property bubble is like a boom, with the difference is there is nothing there
to support it underneath. With property booms, this can be fueled by long periods
of time where demand slowly accumulates or where an industry booms such as building
of many car factories or mining. A bubble is normally started by a real property
boom but its highly inflated by people getting carried away.
The Bubble Goes Pop
Once the property bubble has become over inflated by people thinking they can all
make a quick dollar out of real estate buyers soon realize they are paying too much
and it has become far too expensive for immigrants and young families to now afford
a property of their own. When that happens they stop buying. Once prices plateau
because of the decrease in demand other investors and people quickly wanting to
get in stop. Soon after prices start dropping and people become scared and worried
about housing prices. The self fulfilling prophecy then takes hold and a lot of
people stop buying. Then POP. Demand
drops rapidly and housing prices tumble, normally far more than they should. It
then turns into a buyer’s market; this is where the smart real estate investors
have a lot of fun.
Collapse
A collapse of the housing market will normally have far worse fallout than the bubble.
Collapses or shrinkage of the world economy happens every decade or two. If you
look throughout history, recession just seems to be part of the economy. The trouble
is when it happens people normally haven’t been through one before and will be frightened
by its prospect.
The Implosion
When the economy drops and prices begin to drop, it’s almost like the property boom
in reverse. The outer suburbs with the lower income families struggle to make payments
if they lose their job or consumable prices rise out of their reach. With this foreclosures start occurring and the prices
in the outer suburbs drop rapidly and this begins to ripple inwards to the city
center. High value properties near the coast or CBD retain their value for the longest.
This tends to occur far more rapidly than the boom and again the self fulfilling
prophecy continues.
The Long Run
In the long term housing prices always rise. In the 1960’s you could pick up a house
in just $1000’s, even though we experienced multiple economy collapses during then
till now. Even during bad economic times where there are people there will always
be demand for housing. The only time where a house will lose its value beyond recovery
are small or even medium size towns that have a single source of income for the
community such as farming, mining or manufacturing. If any of these collapse, the
town collapses beyond repair. Cities however are diverse and will continue on.