Economic nature of the “bubble” in the international real estate market

Abstract

The article is aimed at studying the economic nature and origin of the real estate bubble, its financial and economic impact, and the relevant consequences and risks for international real estate markets. The article also notes that during the boom period, the increase in supply is driven by the growth of demand for real estate from end users (the real sector of the economy), and during the bust period - by the growth of demand from investors. The oversupply in the market during the period of market saturation is largely due to the investment in real estate that preceded it during the boom. During this period, real estate is no longer seen as a real asset, but rather as a financial asset that generates income without regard to its connection to the real economy. This, together with rising household incomes and increased mortgage lending, led to the emergence of real estate bubbles. A real estate bubble is defined as a sharp increase in prices and market turnover in the real estate market caused by a significant increase in demand (including speculative demand for the purpose of further sale). The factors contributing to the emergence of the real estate bubble have been identified as follows: sustained high rates of economic growth; high rates of growth of household incomes; increased availability of mortgage lending (lower requirements for borrowers); increased availability of construction lending; and increased investment in real estate.