12 September 2011

Definition of a bubble (part 3)

In Definition of bubble (part 2), I ended with the question: 
“So if higher prices leads to more demand, which feeds into higher prices, what’s to say this cycle can’t continue indefinitely?”
Well, the cycle of rising prices can, and did, continue longer than most of us (including myself) imagined.  But for the housing market to keep rising beyond wages and rental growth, there needs to be ever-increasing debt and a never-ending stream of new buyers. Both of these have limits.