Practise defining market bubbles using housing data, percentage changes and price movements that show assets rising above sustainable values.
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)