While it is challenging to completely prevent housing bubbles, certain measures can mitigate the risks:
- Regulation: Stricter regulation of lending practices can help prevent the approval of risky mortgages. Financial institutions must adhere to rigorous standards to ensure that borrowers can reasonably repay their loans. - Monetary Policy: Central banks can adjust interest rates to control borrowing and spending. Higher interest rates can cool off an overheating housing market. - Market Monitoring: Continuous monitoring of the real estate market for signs of speculative behavior and unsustainable price increases can help policymakers take preemptive action. - Public Awareness: Educating consumers about the risks of speculative investments and the importance of sound financial planning can help curb irrational market behavior.