What is a 'real estate bubble'?

A 'real estate bubble' refers to a period characterized by rapidly escalating property prices. This phenomenon typically occurs when demand for real estate significantly outpaces supply, often fueled by speculative investment or overly optimistic economic forecasts. As prices rise sharply, they can become detached from the underlying economic fundamentals, such as income levels and housing demand, leading to a situation where the prices are inflated beyond sustainable levels.

Eventually, the bubble can burst when it becomes unsustainable; this often results in a sharp decline in property values, as buyers retreat from the market or cannot afford the inflated prices. Understanding this concept is crucial for real estate professionals, as recognizing the signs of a bubble can help in making informed decisions regarding buying, selling, or investing in property.