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When The Bough Breaks !

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When the bough breaks

Felicity Duncan

Posted: Mon, 20 Jun 2005 16:00 | © Moneyweb Holdings Limited, 1997-2005

Asset price bubbles have been with humanity almost as long as assets – even the venerable Isaac Newton, certainly nobody’s fool, lost his shirt (and ₤20 000) in the South Sea Bubble of the early 1700s. Yet, despite their frequent recurrences, it seems people never really learn from these outbursts of economic exuberance.

An asset price bubble occurs when speculation in a commodity (anything really – property, silver, tech stocks) causes the price to increase, producing more speculation. The price eventually reaches ridiculous levels and the bubble bursts, resulting in a sudden drop in prices. In a bubble, people buy assets based on the expectation that the price of the assets will increase, rather than on the basis of the return they can earn from those assets. Obviously, this becomes problematic when the price increase fails to materialise, further deepening the crash.

Now, take the current property mania – you can call it a boom or a bubble, depending on your point of view – is it displaying signs of bubblehood?


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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
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      • up 5%

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