What typically leads to a 'real estate bubble'?

A real estate bubble typically occurs when there is a rapid increase in property prices, primarily driven by speculation. This situation arises when investors begin to purchase real estate not just for personal use or long-term investment, but with the expectation that prices will continue to rise, allowing them to sell for a profit in the short term. This speculative behavior can create demand that is not based on fundamental economic factors, such as income levels or population growth, leading to unsustainable price increases.

As prices soar due to this speculation, it can create an illusion of value, which attracts more investors. When the market becomes saturated with buyers chasing after rapid profits, it becomes increasingly detached from the actual value of the properties. Eventually, this can lead to a significant correction when prices can no longer be sustained, resulting in a sharp decline and potential economic consequences.

In contrast, steady declines in home prices or slow and stable market growth tend to reflect a balanced market, where values are more aligned with actual economic conditions. Increased levels of foreclosure sales can indicate distress in the market, but they do not typically contribute to the creation of a bubble; instead, they are often a sign of a market correction or downturn. Therefore, it is the speculative nature and rapid price increases that are characteristic