Market Crash
Have you ever wondered what a market crash is and what are some of its common causes? Perhaps you've heard people refer to a stock market crash where investors lose large sums of money? Or maybe you've heard rumours about an impending property market crash, where the value of residential property is expected to suddenly lose value?
In this article, we'll look at the different types of market crashes and what the symptoms of a crash are. We'll also look at how they affect the people with money invested in these markets and the time if takes for markets to usually recover following a crash.
A market crash is simply a sudden downturn in economic health. Common forms of crashes are stock market crashes, where stock prices decline significantly and property market crashes, where house prices suddenly fall.
Crashes can be caused by economic factors as well as a general mood pervading a market. They are usually heralded by high property prices and stock market bubbles. Several major crashes over the years have been driven by panic such as the Wall Street Crash of 1929. Often it is impossible to point to any one factor as being responsible for a crash, such as the Wall Street Crash of 1987. Economists point to a falling U.S dollar, a large trade deficit and psychological factors as the main contributors to the 1987 crash. However, no one has ever been able to offer a definitive reason for why the crash occurred. Luckily, a stock market will generally rally after a crash and can recover quickly if investor confidence can be boosted
This is not true of property markets however, which take a lot longer to stabilize. Crashes usually occur after a property bubble, which cause prices to increase until they reach unsustainable levels. For example, the price of residential property may increase so drastically in a given period that many people are unable to afford to purchase new homes. Crashes severely reduce the value of residential properties and can leave property owners paying off loans that are worth more than the value of their properties.
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Banking - Business Finances - Economics - Insurance - Investing
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