Many people are in a frenzy about buying and investing in property, fearful of missing out on the gains that others appear to be making.
The key question is: will house prices continue to rise – or are we in a bubble?
This isn’t an easy question to answer.
This is for two reasons. First because property is an emotional asset, and second because the behaviour of individuals in asset bubbles is based less on fundamentals and more on psychology.
Consider this quote from Bill Powell in TIME on the complacency that existed in Japan in the late 1980s: “Looking back, it’s odd that so few people saw the bust coming. I certainly didn’t. In 1989, I was Tokyo bureau chief for Newsweek, and I lived through the bubble years acutely aware of what strange days they were, yet without quite realizing those days were numbered. It should have been obvious that such excess was unsustainable.”
Yet human nature is such that we seem poor at learning from history. In December 2005 the New York Times posted a piece warning of a possible US house price bubble – “Take it from Japan: bubbles hurt”. Here’s an excerpt:
“During a bubble, people don’t believe that prices will fall… This has been proven wrong so many times in the past. But there’s something in human nature that makes us unable to learn from history.”
Just one year after this piece was published the US housing market crashed 67 percent.
So, here, we want to dig into the data to see if we can get clearer on whether there is good reason for our local property prices to continue rising, or if in fact we are in a bubble that is waiting to burst.