<P> The pre-dominating economic perspective is that increases in housing prices result in little or no wealth effect, namely it does not affect the consumption behavior of households not looking to sell . The house price becoming compensation for the higher implicit rent costs for owning . Increasing house prices can have a negative effect on consumption through increased rent inflation and a higher propensity to save given expected rent increase . </P> <P> In some schools of heterodox economics, notably Austrian economics and Post-Keynesian economics, real estate bubbles are seen as an example of credit bubbles (pejoratively, speculative bubbles), because property owners generally use borrowed money to purchase property, in the form of mortgages . These are then argued to cause financial and hence economic crises . This is first argued empirically--numerous real estate bubbles have been followed by economic slumps, and it is argued that there is a cause - effect relationship between these . </P> <P> The Post-Keynesian theory of debt deflation takes a demand - side view, arguing that property owners not only feel richer but borrow to (i) consume against the increased value of their property--by taking out a home equity line of credit, for instance; or (ii) speculate by buying property with borrowed money in the expectation that it will rise in value . When the bubble bursts, the value of the property decreases but not the level of debt . The burden of repaying or defaulting on the loan depresses aggregate demand, it is argued, and constitutes the proximate cause of the subsequent economic slump . </P> <P> In attempting to identify bubbles before they burst, economists have developed a number of financial ratios and economic indicators that can be used to evaluate whether homes in a given area are fairly valued . By comparing current levels to previous levels that have proven unsustainable in the past (i.e. led to or at least accompanied crashes), one can make an educated guess as to whether a given real estate market is experiencing a bubble . Indicators describe two interwoven aspects of housing bubble: a valuation component and a debt (or leverage) component . The valuation component measures how expensive houses are relative to what most people can afford, and the debt component measures how indebted households become in buying them for home or profit (and also how much exposure the banks accumulate by lending for them). A basic summary of the progress of housing indicators for U.S. cities is provided by Business Week . See also: real estate economics and real estate trends . </P>

What are the markers of a housing bubble