Understanding the real estate bubble phenomenon

The real estate bubble phenomenon has been the talk of the town since the beginning of the pandemic, which has had a strong impact on the Quebec real estate market. Here are a few important points to better understand what a real estate bubble is and in what context it forms.

The definition of a real estate bubble

A real estate bubble is characterized by a rapid and significant increase in property prices that does not reflect the state of the economy. In other words, property costs are rising, but the growth of the economy does not follow.

The definition of a real estate

Under these circumstances, a significant proportion of first-time buyers are unable to own property and are forced to rent or move out of the area affected by the price increases to find a more affordable area.

What leads to the formation of a real estate bubble?

A real estate bubble occurs when demand exceeds supply and the market overreacts. Several factors can cause this situation.

One example is low interest rates that make it easier to get a mortgage. This not only attracts more buyers to take advantage of the opportunity, but it also increases their purchasing power to buy a property at a higher price.

Another factor is the sense of urgency to buy due to the scarcity of properties. With a high competition due to the lack of supply of properties for the demand, buyers are quick to make offers, which encourages overbidding.

Properties sold at high prices increase the market value of other nearby properties, leading to a generalized strong growth in prices.

The consequences of a real estate bubble

Whether it is slow or fast, a real estate bubble will eventually collapse. In the best case, the real estate market can return to equilibrium without too much impact if demand continues.

On the other hand, one of the risks of continued speculation is that the bubble will burst. This means a drop in property prices. Many households then find themselves paying a mortgage that is higher than the market value of their property, which can lead to increased debt and bankruptcies, for example.

The consequences of a real estate bubble burst

Some tips for making an informed decision

Regardless of the state of the market, it is essential to ask yourself the right questions and take the time to evaluate your situation before making a decision. Buying or selling a property is an important transaction that must be thought out. Knowing your financial capabilities, the reality of the market, the options available, the associated costs, etc. are all examples of essential steps in your decision making.


Resources to help you in your efforts:

Buyers:

Sellers:


The future cannot be predicted and it is even more difficult to get a clear picture of it with the atypical context of the pandemic. We will never know when the "perfect time" to buy or sell will be until we are there. You must therefore find the time that is ideal for you in order to launch your project when you are ready.

Work with a real estate broker to guide you. The help of a real estate expert is a winning solution to succeed in your buying or selling project. Sutton brokers are passionate about real estate and are available to answer all your questions.

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