What is a Housing Bubble?

According to the dictionary, a bubble is a “thin, usually spherical or hemispherical film of liquid filled with air or gas”. In other words, a bubble is described as something that has little firmness or solidness.


Economists describe a bubble as “the rapid increase in price due to some speculation on a particular commodity which will suddenly drop if it reaches an unreasonable level”. The sudden drop is often referred to as the bubble “bursting”. As an example, a bubble can occur when there exists a very attractive and “in demand” investment opportunity. Many investors take advantage of this great “deal”, causing prices to inflate (supply and demand), however, one never knows when the “bubble” will “burst” resulting in a drastic fall in the price, making the investment worth less than it cost the investor originally.

So what about housing bubbles? What does it mean?

A housing bubble is currently being talked about, especially in the Canadian real estate market. But what exactly is this bubble…and how does it affect real estate? According to a recent article in the Toronto Star, a housing bubble may not be a good thing. The article states “most economists agree that sales of homes have gone beyond historical and demographic norms and prices are likely over-inflated in comparison to income”. The article goes on to say “most economists at least agree that prices will have to fall or level off over the next several years”. To read further about the housing bubble, its cause and effect, plus tips on how to avoid it, click here. It’s a very good read and may be quite helpful.

Until next time,
Jamie