With respect to the US situation on the chart above, the stretch from late 2002 until mid-2006 should qualify as a bubble despite the “flat price” period not quite getting to 10 years. Historically, real-estate bubble graphs that include the full episode are very heavily skewed to the left. However, the recent case in the US creates an unusually symmetrical graph. Without the incredibly massive intervention by the Fed, my guess is that this “mother of all real-estate bubbles” would have kept skidding lower instead of abrupt bouncing and levelling in mid-2009. Without QE, we might be back to 2000 prices where they could have remained essentially unchanged for the next number of years, perhaps extending towards 2017-2018 before finally gaining some traction again.

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From my previous post on My Definition of a Housing Bubble:

There aren’t really any universal definitions of how a bubble in housing should look or how it can be quantified.

That said, my sense is that a housing bubble is a rise towards a peak that will be significant enough that if one were to look at time elapsed between the equivalent prices on either side of the peak, it will be around a decade. I call this the “flat price” period.

“Flat prices” for a decade, whether it is real estate or securities, is enough to seriously impair the financial reality of people who are significantly exposed to the bubble. For most, life has enough twists and turns over a decade that financial flexibility is necessary. Losing that flexibility because of exposure to an asset price roller-coaster is deeply impacting to the point that it will likely have a permanent effect on a person’s investment psyche.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. 

Richardson GMP Limited, Member Canadian Investor Protection Fund.

Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.

From the chart above, and according to my definition, Toronto has not had a real estate bubble over the past generation.  However, the massive price spike from early 1988 to early 1990 probably felt like one since the eventual ascent above the nine-year “flat price” period was excruciatingly slow and the late 80’s peak was not regained until 2005.

From the previous post on My Definition of a Housing Bubble:

There aren’t really any universal definitions of how a bubble in housing should look or how it can be quantified.

That said, my sense is that a housing bubble is a rise towards a peak that will be significant enough that if one were to look at time elapsed between the equivalent prices on either side of the peak, it will be around a decade. I call this the “flat price” period.

“Flat prices” for a decade, whether it is real estate or securities, is enough to seriously impair the financial reality of people who are significantly exposed to the bubble. For most, life has enough twists and turns over a decade that financial flexibility is necessary. Losing that flexibility because of exposure to an asset price roller-coaster is deeply impacting to the point that it will likely have a permanent effect on a person’s investment psyche.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. 

Richardson GMP Limited, Member Canadian Investor Protection Fund.

Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.