2 But pandemic-era supply-and-demand dynamics, rather than speculative excess, are likely driving the rise.Ĭryptocurrencies, on the other hand, have soared more than 500% in the last year. home prices rose 10.4% year-over-year in December 2020, their biggest jump since recovering from the global financial crisis. housing and cryptocurrencies, seem particularly frothy. Our view is informed by academic research dating from the start of this century, before the dot-com bubble burst.Īre there asset bubbles out there now? We at Vanguard have great respect for the uncertainty of the future, so the best we can say is "maybe." Some specific markets, such as U.S. Vanguard believes that a bubble is an instance of prices far exceeding an asset's fundamental value, to the point that no plausible future income scenario can justify the price, which ultimately corrects. He found that assets whose prices more than double over one to three years are twice as likely to double again in the same time frame as they are to lose more than half their value. Yale University's William Goetzmann learned just how hard it can be to pinpoint a bubble.
Anyone who has tried to breathe one last breath into a balloon and finds it can accommodate two or three more breaths can relate. Until then, a fast-appreciating asset may seem overvalued, only for its price to keep rising. There's only one sure way to identify an asset bubble, and that's after the bubble has burst.
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