Practise defining a housing market bubble by linking speculation and rapid price rises to overinflated, unsustainable values in context.
In 2020 the German city of Munich had the highest risk of a housing market bubble in the world. Between 2010 and 2020 the average price of a house more than doubled.
With reference to Munich's housing market, explain what is meant by a 'market bubble'.
Knowledge 2, Application 2
Quantitative skills assessed:
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge
2 marks for understanding 'market bubbles'
- A bubble is created by speculation/consumers buying in the hope of selling at higher price/expectations of further price increases (1)
- To a level which is overinflated/above expected prices/increase to extreme levels/increasing constantly (1)
- Price is unsustainable/price is higher than true/real value (1)
- A market bubble is an examples of a market failure (1)
Application
2 marks for applying to Munich's housing market e.g.:
- Munich has the highest risk of a housing market bubble (1)
- Between 2010 and 2020 the average price of a house more than doubled (1)
- House prices may be at risk of falling/the housing price bubble may be at risk of bursting/demand may fall when potential buyers can no longer borrow money/loss of confidence about future price rises (1)