In finance and economic contexts, a âbubbleâ is when the price for a class of assets, such as real estate, grows substantially over a short period of time, but largely as a result of âirrational exuberanceâ and herd mentality. Since the demand is âartificialâ and not largely based on any ârealâ value of the asset, the bubble is often âburstsâ or âcrashesâ, resulting in sometimes catastrophic reductions in the demand of that asset.
Lower interest rates often contribute to the expansion of asset bubbles since people are encouraged to borrow more and invest in assets.
Some notable examples of bubbles:
- The burst housing bubble in 2007ish which sparked the Global Financial Crisis.
- The Dot-com bubble in the late 1990s was a stock market bubble associated with the massive growth in the use of the internet.
- The cryptocurrency bubble.
- The 2022 tech bubble which wrecked the stock prices of many tech companies and resulted in mass layoffs.
- The Australian property bubble, maybe.