I have been reading about the worsening housing/rental market, COL and worrying inflation figures as a whole. Seeing lots of talk about this mythical “bubble”- people saying things like “the bubble is about to pop”, and “welcome to the bubble” blahblahblah **BUBBLE**. Seems like this is a common term/knowledge in economics but I don’t fully understand… please eli5 🙂
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A bubble occurs when people are buying something not because they think it’s actually worth the price, but because they think they will be able to sell it for more than they paid. The price goes up and up and up, each successive owner selling it for more than they paid, until eventually someone isn’t able to find any buyers–at which point they’re left holding something whose actual value is a tiny fraction of what they paid for it.
People buy in because the price *is* going up, and so as long as they get out in time they *will* make money. But inevitably someone isn’t going to get out in time. It’s functionally equivalent to a pyramid scheme, but is something that happens naturally without anybody necessarily intending it.
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