Monday, July 6, 2009

Bubble Graphs

If you follow most bubbles you will see a graph that is similar to this one.

If course every bubble is different and the desperate measures to reinflate the bubble once it starts to deflate means that the shape and duration get distorted.

The Nasdaq graph from 1996 to 2004 follows this graph almost perfectly. You could put the two on top of each other and each blip and spike will be on both.

US real estate also followed this pattern.

Of course not ALL bubbles follow the graph, some will have prolonged plateaus, others will just collapse suddenly. However this pattern repeats itself sufficiently frequently to suggest it is a good proxy for human mass psychology.

In any case, I post this to show that we could very well be right where we should be. We had the first sudden drop, are in the midst (or near the end) of the rebound up...perhaps to be followed by the big drop.

Ironically we are so easy to predict that we have the exact emotions on the graph. Bulls are now jubilant and bears dejected, both are becoming convinced that we are heading for the highs again.

If we DO reach the highs again, then this graph is not valid and we are developing a different pattern. Let us see what happens over the next few months.


  1. Should be a very interesting few months. I think if the price gains continue I will just give up and move to vegas and pay the mortgage by playing poker (600 a month for a 3 bedroom house with a pool and hot tub). Probably not the best thing to do with your money, but still safer than the Vancouver housing market!

  2. Fish - when do you think we will see the top of the bounce on your graph? Did we just have it, or is it still coming.

  3. No idea Anon. June was a big sales month. So far the numbers I am seeing show lower lists and lower sales in July, so maybe that is the start of the turn.

    However it is too soon to tell.

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  6. Dang- I keep messing up th post, last time.

    US rental apartments have reached a 7.5% vacancy rate a 22 year high.

    That is almost beyond belief. Housing sales down AND rentals down.

    Where are people going?

    Back home to mom and dad, and sharing with friends.

    It is almost inconcievable that our neighbour down South will be in such a crisis over RE and we have a bounce. Lets watch that graph carefully.

  7. This bounce is so strange. On the radio there is a story on how the economy is in the crapper and job losses are increasing, and the very next story is about record real estate sales! When I look around, nobody I know seems to be affected by the downturn. In fact, people are in a house-buying frenzy. It makes no sense.
    My wife and I are almost at the end of our patience with this city's real estate market. If things don't show some significant declines by fall we are going to make plans to move away.

  8. Good graph, now I can understand where we are at this point, I have been hearing key words in the media like "return to normal" and "stabilized"
    We just have to be patient, frustrating as it is, but really, there's no reason for RE to have another bounce, even after the Olympics as people realize it wasn't the cash cow everyone made it out to be. Plus, interest rates "should" be higher by then, so affordable will quickly become unaffordable.