A real estate market bubble is the process of increasing the market values and prices of property due to the increase in demand or a decrease in the properties offered at that time. This leads to more competition in the marketplace as real estate agents have to balance the costs and benefits of such a fluctuation in prices. Their clients have the chance of losing interest should the prices raise too much, but the real estate agent has the chance of losing profit should they lower the prices too much.
Since pricing in real estate is relative to the prices of other offered properties, it can fluctuate unexpectedly. Some cities become extremely expensive while others stay relatively affordable compared to the rest of the state. The most expensive real estate markets tend to be the most densely populated because there are little places to build homes at. For this reason, their prices are high and clients who need a place to stay are willing to buy it at those inflated prices.
Where Are the Next Recent Real Estate Bubbles?
The next real estate market bubbles are expected to be in the following areas:
- Hong Kong
- New York
These cities are at the top of the list because there is no more space to build property or housing, so the real estate agents have to price them high enough to make profit. After spending an extreme amount of money building the properties, it has to be leveled out by the demand and costs of the area.
Up and coming cities like Chicago, Boston, and Los Angeles have yet to seem the boom and bust of the inflated prices in the aforementioned cities. There is still room to build, thus causing lower expenses to build such homes and less inflation.
Why Is This Significant?
This is a significant finding because working, living, or retiring in a certain city are heavily influenced by the cost of living in that area. If the prices of a city are inflated, then someone is less likely to want to work and live in that area.