Insights Success The 10 Most Valuable Real Estate Solutions Provider Companies Insights success November2016
Insights Success The 10 Most Valuable Real Estate Solutions Provider Companies Insights success November2016
Insights Success The 10 Most Valuable Real Estate Solutions Provider Companies Insights success November2016
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In <strong>The</strong> Spotlight<br />
READY TO POP THE<br />
REAL ESTATE<br />
Bubble!<br />
t was in 2008, the last time when the real estate<br />
Ibubble burst. And by that experience you would<br />
probably be hesitating to put your step into the real<br />
estate market again. So what is <strong>Real</strong> <strong>Estate</strong> Bubble?<br />
A real estate bubble is an increase in housing prices<br />
fueled by demand, speculation and exuberance. It usually<br />
starts with an increase in demand, in the face of limited<br />
supply which takes a relatively long period of time to<br />
restore and increase. Speculators enter the market, further<br />
driving demand. At some point, demand comes down or<br />
stagnates and at the same time supply increases, resulting<br />
in a sharp drop in prices, and the bubble bursts.<br />
If someone is buying during a bubble, overpaying for the<br />
property, then either they may be forced to sell the<br />
property for much less than the property is worth of, or to<br />
stay longer until enough equity is built up to sell the<br />
property. So, if someone is planning to buy a property<br />
then they should understand the signs that point towards<br />
a real estate bubble.<br />
Unstable Loans<br />
Prior to recession it has been observed that subprime<br />
lending is not a healthy practice. As the subprime lending<br />
focuses on providing loans to that population who<br />
otherwise don’t have access to the credit market.<br />
As these loans are characterized by higher interest rates<br />
and are less favorable in terms to compensate the higher<br />
credit risk. On the other side it has been observed in the<br />
past that packaging subprime lending with mortgagebacked-securities<br />
(MBS) has contributed to global<br />
financial crisis.<br />
Financial Leverage<br />
When someone takes out a mortgage, the money is<br />
leveraged out. As the leverage and down payment for a<br />
particular asset are inversely proportional to each other,<br />
less is the down payment more is the leverage because<br />
here lender’s money is used to make the purchase.<br />
Leveraging affects the financial stability as the gains or<br />
losses get multiplied with increased leverage. Loses<br />
creep into the scenario if the financing costs exceed the<br />
income from the asset due to the dip in its prices.<br />
Rise in Interest Rates<br />
If people are to make a decision about buying a property<br />
22 | December 2016 |