After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
But the rest of the world – and especially Australia – is different. House prices in Australia, the UK, and everywhere in between where they are still rising, are justified by … (fill in your favourite fundamental reasons here) and are not in any way manifestations of bubbles.
My unpopular alternate refrain is that house price (and share price) bubbles are always and everywhere a phenomenon of rising bank leverage, and anywhere that has high and rising levels of household debt (relative to GDP) is a candidate for being a bubble economy. This is a non-mainstream argument in economics, because for decades the so-called ‘efficient markets hypothesis’ and ‘capital assets pricing model’ have dominated academic economics, and they both argue that leverage has no effect on the price of assets.
