Understanding the Housing Bubble in North America

The housing bubble in North America is part of the overall economic bubble in the United States. The housing bubble will affect not only house prices but also other areas. There are many should be taken into account when looking at the housing bubble in North America.

What a housing bubble is would be the best place to start. Any country in the world that has a real estate market will be able to have a housing bubble. When housing prices rapidly and continuously increase until they cannot be sustainable is what is known as a housing bubble. Housing bubbles in North America, the United Kingdom, and Spain coincided with the housing bubble felt in the US.

The identification of a housing bubble is thought to only be possible in hindsight. The American housing bubble is considered to have spotted as from 2004. Because the bubble coincided with bubbles in other countries, many people believed that it would have to be viewed in a global sense and not only in the United States.

The fact that there was a housing bubble and not recognized by some high powered people in America. Influential people in the financial world did receive warnings from various people about the dangers involved in over extending themselves. Analysts in 2006 predicted the fact that many companies were going to suffer from this eventually.

The housing bubble did have some side effects. One of the side effects was the increase in the building of new houses. As the market was up, more people built homes to sell at high rates. The price of houses made many people leave the high priced areas in many metropolitan areas. This saw populations in commuter towns rapidly increase.

No housing bubble was able to continue indefinitely, and the North American bubble is the same. The beginning of the end came in 2007 when the mortgage industry took a hit due to the increase in foreclosures. That was just the beginning of not only the collapse of the housing bubble but also many other areas of the global economy.

The US housing bubble was only one of the many aspects of the countries economics. Like all countries, the United States’ housing bubble was bound to break at some point even if some people did not want to acknowledge it at all.

Therefore there is yet a vast deal of disapproval in the general population. The conventional wisdom appears to be that prices will begin to recover once this recession is behind us. In a regular real estate market experiencing a downturn due to a problem in another part of the economy, this thinking might be right. House prices often stagnate when an individual industry is in contraction and resume appreciation when the industry recovers. That works in a healthy real estate market because prices correlate with incomes. When incomes drop or stagnate, so do house prices, and when income growth picks up again, house prices go along for the ride. However, this recession and the response to it are different.

The major area of denial surrounding real estate is the loss of the associated lifestyle. People seem to believe that prices will recover, and lenders will go back to supporting their lifestyles by providing home equity lines of credit for every dollar of appreciation, and the party will continue much like before. That is not going to happen. They are not going to lose a trillion dollars then go right back to the behaviors that cost them all that money.

Without significant structural changes to our lending system, the practices of the bubble might return some day, but not for 10-20 years or longer. It certainly is not going back to the way it was in the next six months or 6 years for that matter. The party is over, and people have not accepted that fact, nor have they adjusted to it. There are still difficulties ahead.