Real estate prices skyrocketed during the pandemic
Countries with most risk of a real estate bubble
Which are the 10 countries with the highest risk?
Smaller countries included, Germany 19th
Why have real estate prices gone up?
Investors buy and hold houses
The pandemic effect
Economic rebound
Banks add to the bubble
Cooldown or collapse?
Lesson learned from the previous crisis
Social problems
Empty flats
Housing as a right
Possibility of an outburst
History could repeat itself
The new real estate bubble: a big, global problem
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Real estate prices skyrocketed during the pandemic

A concerning phenomenon is currently taking place in various continents, Bloomberg reports. House prices have skyrocketed, to the point that they may be artificially inflating and forming a dangerous bubble. If it bursts, it could cause a crisis like the one that bankrupted Lehman Brothers and sparked the great recession in 2008. Which countries are most at risk for such a bubble? And why did the pandemic cause the market to overheat?

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Countries with most risk of a real estate bubble

According to the Bloomberg study, the dangerously rising price level especially occurs in Canada, New Zealand, and Sweden.

(In the image by Boyan Lepoev / Unsplash, a street in Montreal)

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Which are the 10 countries with the highest risk?

Bloomberg also includes the United Kingdom, the United States and France among the 10 developed countries most at risk of experiencing a housing bubble with severe consequences.

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Smaller countries included, Germany 19th

Smaller economies with the same tendency are Norway, Denmark, Belgium and Austria. Germany is not in the top 10, but its 19th place does not mean German policymakers can sit back and relax.

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Why have real estate prices gone up?

There are several reasons why house prices have risen. For starters, there has been a speculative trend in the housing market for a long time. The purchase of houses has become yet another investment for large entrepreneurs who push private individuals out of the market as they are looking to buy themselves a home.

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Investors buy and hold houses

Businesses invest in housing for tourist or other lucrative rental arrangements. Sometimes they simply hold on to a building as if it's a stock. They wait for the price to rise so they can resell at a profit.

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The pandemic effect

Add to this a "pandemic effect:" people who did not lose their jobs in the pandemic have manage to save money for a year and want to do something with it. For many white collar workers, confinement in the home office has led them to look for a different kind of home: larger, maybe outside the city, with a garden, etc.

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Economic rebound

The end of the pandemic (with stimulus plans from various national governments) causes an economic rebound for the world. It affects real estate as any other sector in the economy. With a sudden recovery and high demand for houses and flats, prices rise fast.

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Banks add to the bubble

And then there are the banks, which always need to expand their businesses and use home loans to attract new customers.

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Cooldown or collapse?

What could happen if prices rise above all logical levels and homes end up costing an enormous price? One option is that there will be a progressive cooling - most analysts bet on this possibility - but the alternative is that the economy collapses.

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Lesson learned from the previous crisis

Optimistic analysts assume that banks and investors will have learned from the previous crisis. Banks are forbidden to take excessive risks and homebuyers are more credit-worthy than when the Great Recession broke out.

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Social problems

However, there is another side to the matter. The price increase in the real estate market causes social problems. Young people and economically weak groups in society are priced out of a home. This can lead to increasing poverty and disruption.

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Empty flats

There's also the problem of urban infrastructure. The city is full of empty houses because investors refuse to rent or sell them until prices rise significantly. This has an impact on cities that are left without life on their streets.

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Housing as a right

Protesters in many countries emphasize that housing is a human right that cannot be placed in the hands of speculators. Countries like those in the European Union have imposed maximum rental prices, but this policy often gets criticism from the more orthodox economists or neoliberalists.

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Possibility of an outburst

Either way, the Bloomberg report confirms the possibility that the global real estate bubble may burst. The consequences of such a collapse can be dire for the global economy.

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History could repeat itself

If history repeats itself, we could return to a global crisis like the one in 2008. Hopefully the optimists are right and such a crisis will be avoided.

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