Lecture

Real Estate Bubble: Economics of Land and Property

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Description

This lecture delves into the concept of a real estate bubble, where the price of a property undergoes an abrupt and unjustified increase followed by a sharp decline. It explores the conditions that lead to a bubble, such as buyers observing price hikes and speculations turning into excessive participation. The lecture also discusses the confirmation of expectations through rising prices, the financial evaluations during a bubble, and the impact of accommodating financing on sustaining price growth. It analyzes historical data on property prices in the US and Switzerland, highlighting the risks associated with excessive optimism and the challenges of distinguishing between justified and unjustified price increases.

In MOOC

Soil and Real Estate Economics I

This course has been prepared by an economist attached to an architecture institute, who has over 20 years' experience of teaching the basics of economic analysis, particularly for real estate, to students who are not economists. The course will provide you with economic knowledge enabling you to understand many of the mechanisms of our market economies, such as competition, price formation, equilibria and disequilibria. It also provides a basic understanding of financial analysis. It is especially useful

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Related concepts (31)

Real-estate bubble

A real-estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets, and it typically follows a land boom. A land boom is a rapid increase in the market price of real property such as housing until they reach unsustainable levels and then declines. This period, during the run-up to the crash, is also known as froth.

Economic bubble

An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be caused by overly optimistic projections about the scale and sustainability of growth (e.g. dot-com bubble), and/or by the belief that intrinsic valuation is no longer relevant when making an investment (e.g. Tulip mania). They have appeared in most asset classes, including equities (e.

Japanese asset price bubble

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and Japan's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time.

Stock market bubble

A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation. Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets.

Behavioral economics

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. The study of behavioral economics includes how market decisions are made and the mechanisms that drive public opinion.

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