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- Cyclic in nature
- Important indictors of a housing bubble: valuation component and leverage component
- Valuation component: A measure of the price of housing relative to income
- Debt component: A measure of the amount of indebtedness taken on after the purchase of real estate
- A global phenomenon seen in various economic/political environments
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The housing bubble refers to the increase in housing prices relative to interest rates and personal incomes. Once real estate values reach inflated levels, as compared to personal income, the bubble can collapse, resulting in a marked increase in loan defaults
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Key Ratios
- Price to Income Ratio = Price of Real Estate / Household Income
- The price to income ratio takes into account the affordability of real estate relative to income. It is a primary measure used by lenders to gauge the ability to sufficiently pay down a loan.
- Median Multiple = Median House Price / Median Annual Household Income
- An economic indicator as to whether housing prices are misaligned with the income of a given area. Historically at around 3.0, periods during housing bubbles have seen numbers in excess of 6.0.
- Loan to value = Dollar Amount of the Loan / Appraised Value of the Real Estate
- A measure used by lenders to assess the risk of a loan. The higher the percentage the more risky a loan. For example, a if a borrower wants a loand of $200,000 on a property worth $250,000 the loan to value (or LTV) is 80%.
- Price to Income Ratio = Price of Real Estate / Household Income
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Housing Bubble Questions
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How do I make bubble tea at home that tastes like at the bubble tea stand? I prefer to use real ingredients, not flavored powder. 1 AnswerThis site shows you how to make all the different varieties of bubble tea. It shows you a powdered version, but also underneath "powdered" it has the fresh fr... read more
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Housing Bubble Recent News Stories
- BusinessWeek: Housing: Is the Slowdown Slowing Down? (August 26, 2008)
- Forbes.com: US November New Home Sales Plunge 9 Pct To ... (December 28, 2007)
- The Washington Times: Blame abounds for housing bust (December 26, 2007)
- Reuters: Home prices post record annual drop (December 26, 2007)
- CNNMoney: Fed tightens up lending rules (December 18, 2007)
- USATODAY.com: Foreclosure Proceedings Set Record (September 7, 2007)
- WSJ.com: Unraveling the Subprime Mess (September 4, 2007)
- USAToday.com: Federal Housing Administration to help refi at-risk loans (August 31, 2007)
- Patrick.net: Housing Crash Continues, Bubble Pops
- CNBC: States to Help Refinance Subprime Loans
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Central Figures
- HUD
- Official Sites: U.S. Department of Housing and Urban Development and Alphonso Jackson
- The Federal Reserve
- Official Sites: FederalReserve.gov and Chairman Ben S. Bernanke
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On Twitter Powered by Twitter
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Fiddling with my blog post: Lender warns of housing bubble http://bit.ly/2SkfzN
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"By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that
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"We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and
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Economist's Corner: The Housing Bubble Revisited - Has Goldilocks... http://tinyurl.com/yz98epy
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@probert06 the housing bubble began in late 06... what was the fed rate then??? ...exactly!!!
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