When it comes to investments, it’s all about bubbles, isn’t it? This is what has been witnessed by countless investors over the years. Every generation would have its own bubble, and investors would soon jump onto the ‘bubble bandwagon’. Once the bubble burst, a new bubble would signal a new investment opportunity – and lo and behold – everyone jumped onto the new one. Here’s a look at the last three bubble bursts the economy has experienced:
The Housing Bubble
The bubble of housing markets burst in 2007 after a huge expansion that began as early as the early 1990s. Investment gurus insisted that the household market would keep growing very strongly, and that interest rates and real incomes were very favorable. However, sometime before 2001, the Federal Reserve cut the interest rates to keep the economy going. Before anyone knew it, home sales were increasing even before they were being constructed. In 2003, these conditions resulted in a tight housing market and low interest rates.
This resulted in a homeowner boom, with a lot of credit options for prospective investors and buyers. However, this sort of a trend was bound to end at some point, and interest rates rightly began to rise during the beginning of 2004. At the end of 2005, price appreciation began to sink. Investors began to pull out of the market, but builders had just begun to meet the demand and increase their supplies.
Supplies began to increase more and more, and soon, the amazingly buyer-friendly mortgage plans stopped as well. As 2006 ended, house prices were down, and the market sank even deeper, as toward the end of 2007, lenders tightened their credit. Thus, the bubble of housing markets finally burst in 2007. However, a new bubble came up to replace this one- oil.
The Oil Bubble
Just before 2008, oil prices were going up, up and up. The year 2007 saw oil prices shooting up by more than $100 per barrel. Now, oil has always been a little controversial. Ever since oil prices started rising, investment experts pointed out that it was due to problems in the Middle East, random market triggers, and everything else under the sun, except reductions in oil supply. However, the fact was that oil supplies were reducing, and not only was the oil bubble going to burst soon and prices going to drop, but the world was actually going to go into an energy crisis. Naturally, when the bubble did burst, everyone was shocked and awed. The truth, however, is that 2008 triggered the oil dip, and prices will keep dipping as oil reservoirs become empty across the world.
The Silver Bubble
This is the latest bubble that burst for investors- the silver market. In fact, this burst is so recent that investment experts are still arguing whether it is going to result in the crash of the silver market or not. The massive dip in silver prices has got some relief in small climbs in the silver market in Asia, but only time will tell if silver will rise from its recent downfall.
However, one thing is for sure- whichever bubble bursts now will definitely be replaced by another one- and the wheels will keep spinning over time.