2. HOW THE HOUSING BUBBLES FOMRED?

• WHAT IS BUBBLE?

Charles Kindleberger describes a bubble as an "upward price movement over an extended range that then implodes." Therefore, until a bubble implodes, we can only say that a market or asset is at risk of a bubble.

• HOW TO DETECT THE BUBBLE RISK?

Quinn and Turner argue that, like the fire triangle, the formation of a financial bubble can be explained by the bubble triangle, in which speculation, marketability and credit/money are the conditions, while policy/technology is the 'spark'.

Source: Boomandbust.co.uk

• HOW DOES THE BUBBLE TRIANGLE EXPLAIN THE FLORIDA HOUSING BUBBLE?

Source: History.com

1. Credit/money:

• National banks are allowed to make loans for non-agricultural real estate.
• Abundant capitals were looking for investment in the roaring 20s.

Source: eh.net

• Banks in Florida have loosened their lending standards.

Source: Vanderblue (1927)

2. Speculation:

• Tourism attracted an influx of capital into the housing market, and house prices in Florida began to rise, further attracting speculative capital.

Source: newspapers.com

• Forbes : "Florida land prices were based solely upon the expectation of finding a customer, not upon any reality of land value."

3. Marketability:

• Houses have become easier to buy and sell due to high demand and speculative capital.

4. Policy/technology：

• After WWI, the popularity of the automobile solved the transportation problem and boosted the rise of tourism in Florida.
• Florida legislature passes a law banning state income and estate taxes to attract investors.

Behavioural considerations:

• As speculators inflated the economy, many Floridians could not afford to live there. The ensuing natural disasters raised further doubts about whether prices had deviated from the fundamentals, which grew into panic, and the bubble burst.