Definition of a bubble (part 1)

The first step in defining a bubble is to identify that price rises are not driven by “fundamental” reasons.

Property bulls and spruikers claim that Aussie house prices are not in a bubble and are, therefore, not going to burst. They argue that high prices are justified due to fundamentals such as population growth, a “chronic” housing shortage, the mining boom, low unemployment, dual-household incomes etc. etc.

The median folly

Hypothetical scenario: the newspapers report that median house prices rose 10% in your suburb last year. 

As a property investor or home owner, do you celebrate the fact that you’re sitting on a 10% profit?  As a renter, do you lament the fact that you’ve missed out?

REIV capitulates

This is the moment I’ve been waiting for.  The biggest property spruiker in town, the Real Estate Institute of Victoria (REIV), has admitted that house prices are set to fall!  No, they didn’t say there would be an “easing in prices”, or an “improvement in affordability”, or “slower growth”.  Yesterday, they announced that:

“Members report positive expectations for market activity in the March quarter at the same time as a drop of 3–5 per cent in the median house price is expected.”

http://www.reiv.com.au/news/details.asp?NewsID=1049

Can our leaders save the property market again?

In my last post, "The crash has begun", I posed the question to myself:

"If the government and RBA managed to save us from a crash in 2008, what’s to say they can’t do it again?"

Well that question assumes that the government and RBA did save us from a house-price crash.  I don't believe they did.  So in fact it was a trick question ... to myself.  But I didn't fall for it.

The crash has begun!

It’s official - the crash has begun! 

Let me explain using the following chart.  It was developed by Jean-Paul Rodrigue, Ph.D. who studied 500 years of bubbles and found that they all look remarkably similar.