Illuminating Real Estate Bubbles and Real Estate Corrections

It's known as a bubble but when it bursts, the after effects are definitely not pleasant at all (as they are when you pop a real bubble). When a real estate goes off, it almost blows up the whole economy with it and leaves investors and property owners in distress.

For instance, you purchased a property in a fast growing property market for 300,000 US dollars back in 2000, the property prices appreciated and your property price reached up to 800,000 USD in 2006, then the inevitable starts happening (known as the bubble burst) and your property price declines to a meager 250,000 USD in a matter of months. That is how devastating these housing bubbles are, and the worst thing about them is that they are hard to foresee, even if you are a veteran in economics.

Property bubbles are not just detrimental once they start to come apart, they are equally damaging to the overall economy even during the course of their build up. A rapid increase in the prices of real estate properties sounds good, and some investors might be able to go home with huge profits, but when we look at overall effects, we come to an conclusion that housing bubbles should be avoided (or at least curtailed by the regulatory bodies) at all costs. First because the abnormal hikes in property prices are based on shaky grounds and second because they are always followed by a very inconsiderate decline in price (known as real estate or housing market correction), which leaves many property owners with negative equity.

Property bubbles are normally dubbed as real estate booms, because it's hard to distinguish between a "bubble" and a "boom". However, a careful comparison of property prices and relevant economic factors can provide us with a pretty clear picture of what's going on in the market.

Real Estate Corrections:

Real estate Corrections are quite the opposite of "Property bubble", in fact property market correction starts right after the burst of property bubble. It is the time when prices tumble and take a nose dive, if the sharp rises in property prices correspond to "property bubble"; it's the sharp decline in property prices that characterize "property correction". This modification in price is bound to happen once the property prices have reached the peak, though these corrections are not abrupt and it can last some years. Sometimes the prices can be reduced to the half of what they were at the peak of "Real Estate Bubble."