What Causes a Real Estate Bubble?
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- Loose lending standards and poor lending products. In 2006 when the government made an initiative to lower lending standards, which disregarded things like bad credit, the loan products were also poor. Therefore, low lending standards increased the number of people on the market who were buying homes without the means to do so. It also increased the number of speculators, since you could buy a house for little money and then flip it for a profit.
- Supply of homes. Looking back to 2006 in our San Luis Obispo area, we had 219 active listings. Recently, we haven’t even come close to that number. In fact, this July we had only around 90.
- Glut of homes. Especially in conjunction with loose lending standards and poor loan products, this amount of supply became an issue. Too many people were buying homes just to flip.
25 episodes