Monday, June 4, 2007

How do Housing Bubbles Burst?

Further to my earlier post, Calculated Risk provide a more detailed account. The fall in house prices in the US starting in October 1989 lasted several years. That's much like Hong Kong starting in 1997 (see this graph), although the process here was drawn out by SARS and other negative shocks unrelated to the original bubble.

The bottom line: housing bubbles can take a few years to burst.

Maybe "bubble" is not quite the best analogy of this process. How about "incredibly slowly swinging pendulum" or "feather falling in a weightless environment"? Actually, they're worse... let's stick with bubble.

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