A bubble occurs when the value of an asset (in this case, houses) rises beyond its actual value due to speculative demand. Eventually, bubbles will pop, and investors (in this case, homeowners) lose money when prices fall back to earth, hurting the overall economy.
Rising Interest Rates and a Greater Number of Houses for Sale
As interest rates continue to rise, this may indicate the impending collapse of the housing market. Several factors, including the current interest rate, contribute to lenders competing against one another to attract buyers. Given that lenders use similar metrics in calculating interest rates, their rates are often aligned.
If mortgage interest rates increase, buyers will no longer be able to afford to purchase a dwelling at as high a price, resulting in sellers lowering their costs. Understanding how interest rates work on a mortgage will enable you to anticipate better what will happen next.
Housing markets are intensely local, not simply national, and regional variations can be huge, even within a block. Assess the neighborhood you're looking in at a more micro level.But housing does not exist in a vacuum, though it may operate independently. Losing a job because of a recession could lead to people being unable to pay their mortgages, and this correlation is inevitable.
We are also likely to see a housing crash when the market begins to expand riskier mortgages and lower credit standards. Easing standards allow low credit quality buyers to make purchases at the exact time house prices are most overpriced.