What is a housing bubble?

A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase.

What is a bubble in economics?

There are many definitions of bubbles. Most of them are normative definitions, like that of Joseph Stiglitz (1990), that try to describe bubbles as periods involving speculation, or argue that bubbles involve prices that cannot be justified by fundamentals.

Can speculators create a housing bubble?

Speculation can further drive the housing market away from fundamentals, though it doesn't have the force to create a housing bubble on its own. When real estate prices start climbing, speculators might see an opportunity to ride that wave and buy into the real estate market.

What is Stiglitz's definition of a bubble?

Stiglitz's definition is: "...the basic intuition is straightforward: if the reason that the price is high today is only because investors believe that the selling price will be high tomorrow—when ‘fundamental' factors do not seem to justify such a price—then a bubble exists." (Stiglitz 1990, p. 13)