Bubbles in contrast: What forms the fork

 

"Although every bubble is different, one common element in most bubbles is the willingness of participants to suspend disbelief and to steadfastly ignore the increasing number of cautionary signs. Another is that the bigger the bubble, the greater the damage it inflicts when it bursts. "

Source: Investopedia / Sabrina Jiang

1. The Dutch Tulip Bubble

2. The South Sea Bubble

3. Japan's Real Estate and Stock Market Bubble

4. The Dot-com Bubble

 5. The U.S. Housing Bubble

"And perhaps most important is that the five biggest historic bubbles, along with others along the way, hold valuable lessons that should be heeded by all investors."(Elvis Picardo,April 19, 2022)

The cause of each bubble will be somewhat different, according to Kesha and Yanyan, the prominent problem of the real estate market in our country is the rapid rise of urban house price and the high ratio of house price to income.

House Price

Source: World's largest data center for consumer prices (numbeo) and author's calculations

The price to income ratio is the nominal house price index divided by the nominal disposable income per head and can be considered as a measure of affordability.In China, first-tier cities have a higher income ratio.

House price to income

Source: China Statistical Yearbook (2011-2016), wind database, author's calculation

After comparing different international bubbles, we can conclude that, 

first of all, housing prices in China are rising too fast. Compared with Japan’s real estate bubble period, housing prices in most Chinese cities have higher income ratios than in 1985-1995 The peak of the Tokyo circle.

Second, since 2005, the growth rate and proportion of housing investment in my country have been significantly higher than those at the same development stage

Japan and South Korea have greatly promoted the accumulation of bubbles.