page_title: Real estate bubble
section_title: Identification and prevention
hierarchical_section_title: Real estate bubble / Identification and prevention
caption_attribution_description: English: Melbourne's Median House Prices Vs Wages In Australia Compiled using data from ABS and REIV.
context_page_description: A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and typically follow a land boom. A land boom is the rapid increase in the market price of real property such as housing until they reach unsustainable levels and then decline. This period, during the run up to the crash, is also known as froth. The questions of whether real estate bubbles can be identified and prevented, and whether they have broader macroeconomic significance, are answered differently by schools of economic thought, as detailed below.
  Bubbles in housing markets are more critical than stock market bubbles. Historically, equity price busts occur on average every 13 years, last for 2.5 years, and result in about 4 percent loss in GDP. Housing price busts are less frequent, but last nearly twice as long and lead to output losses that are twice as large. A recent laboratory experimental study also shows that, compared to financial markets, real estate markets involve longer boom and bust periods. Prices decline slower because the real estate market is less liquid.
context_section_description: As with all types of economic bubbles, disagreement exists over whether or not a real estate bubble can be identified or predicted, then perhaps prevented. Speculative bubbles are  persistent, systematic and increasing deviations of actual prices from their fundamental values. Bubbles can often be hard to identify, even after the fact, due to difficulty in accurately estimating intrinsic values.
  In real estate, fundamentals can be estimated from rental yields (where real estate is then considered in a similar vein to stocks and other financial assets) or based on a regression of actual prices on a set of demand and/or supply variables.
  Within mainstream economics, it can be posed that real estate bubbles cannot be identified as they occur and cannot or should not be prevented, with government and central bank policy rather cleaning up after the bubble bursts.
  American economist Robert Shiller of the Case-Shiller Home Price Index of home prices in 20 metro cities across the United States indicated on May 31, 2011 that a "Home Price Double Dip [is] Confirmed" and British magazine The Economist, argue that housing market indicators can be used to identify real estate bubbles. Some argue further that governments and central banks can and should take action to prevent bubbles from forming, or to deflate existing bubbles.
caption: Ratio of Melbourne median house prices to Australian annual wages, 1965 to 2010
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