Balloon with needles

If you own your home, you may have noticed that the roof above your head has been growing more valuable at a startling rate.

Almost every part of the property market – some London flats excepted – is booming. Prices in June were up more than 13pc on the year, the fastest pace since 2004.

It is not only homes which are getting more expensive. Stocks, bonds, commodities and more have all seen sharp price moves since Covid struck.

Heady rises in assets certainly make investors feel good and raise hopes the economy is on the right track, often in a self-reinforcing cycle.

But when everything is going up, twitchy markets can suddenly turn, alert for anything which could knock the rebound off course or burst what turns out to be a bubble.

The Federal Reserve could bungle the end of quantitative easing, causing a 2013-style taper tantrum. Inflation’s surge could be sustained, forcing higher interest rates. Another Covid wave could shock markets out of their optimism.

Here are five potential bubbles and the threats facing investors.

House prices

Prices hit records this summer. The UK average jumped to £266,000 – up £31,000 on the year, according to the Office for National Statistics.

Britain’s boom is but one part of an extraordinarily hot global property market. US prices are up almost 15pc, the fastest pace in 30 years. Canada’s market is up almost 14pc. New Zealand’s property market is up almost 30pc.

This is all evidence to analysts at the Resolution Foundation that low interest rates, lockdown savings and shifting demand have been more important factors than Britain’s stamp duty holiday in pushing up prices.

The end of the tax break is unlikely to burst the bubble – but a rise in interest rates could.

Andrew Wishart at Capital Economics expects prices to rise another 7.5pc by the end of 2023 aided by lower mortgage rates. But he acknowledges the risk of Bank of England rate hikes.

“If the Monetary Policy Committee undertakes a significant tightening cycle, perhaps raising Bank Rate to 1.50pc, house prices could drop by 4pc,” he says.

Story continuesBonds

Families are not the only borrowers who have become extremely used to ultra-low rates.

Governments and businesses have also borrowed hard since the pandemic began with minimal repayments allowing them to spend without too many worries.

Low bond interest rates – yields – equal high bond prices, raising concern over the potential for a bust.

Britain’s Government ran its biggest deficit on record in 2020-21, borrowing £298bn. Yet the cost of servicing the debt slumped to a record low of just 2pc of Treasury revenues, down from as much as 4pc in 2019-20 and 7pc in 2011-12.

But that has already crept up to 2.9pc as rising inflation pushes up debt servicing costs.

Meanwhile businesses worldwide have borrowed heavily. Non-financial businesses’ debts in advanced economies boomed from 165pc of GDP in the final months of 2019 to 185pc by the end of 2020, according to the Bank for International Settlements. In emerging markets it jumped from 147pc to 173pc of GDP. It leaves borrowers vulnerable to a jump in rates.

Barry Naisbitt, economist at the National Institute of Economic and Social Research, says the extent of the risk depends on how suddenly any rise in rates arrives.

“The average duration of UK government debt is long compared to other countries, so it would not immediately face having to roll over debts [at a higher rate],” he says. “But some countries and companies do need to roll over debts soon and could be caught out by a very sudden change.”


America’s S&P 500 rapidly rebounded from the Covid slump and routinely reaches new highs.

Optimism on growth is one thing. Assuming Fed tapering will be smooth and inflation will not become a problem is another.

Mark Haefele, chief investment officer at UBS Wealth Management, expects a “smooth landing” as the Fed eases off the accelerator, but is wary of the hazards ahead.

“Every inflation report above 2pc will lead to a chorus of calls for the Fed and other central banks to rein in stimulus, so that inflation doesn’t spiral out of control,” he says.

“At the same time, the Fed knows that overzealous attempts to tame inflation risk putting the economy and markets on course for a hard landing.”

He expects the S&P 500 to rise from almost 4,500 now to 4,800 by June 2022. But with “bad inflation”, a growth crunch or a new Covid scare – the market could tumble to 3,800, erasing almost all of 2021’s gain


The real economy is as big a risk as monetary policy, particularly when it comes to commodity prices.

Copper offers a salutary lesson to any investors who think everything has to keep rising this year.

The red metal doubled in price between its spring 2020 trough and May 2021, far above pre-pandemic levels as China’s economy boomed and the net zero agenda set demand forecasts soaring. But it stumbled several times as Chinese authorities took action to cool prices, then fears of a new wave of Covid hit demand.

At their low ebb this month prices were down 15pc from their peak – high by historical standards, but a sign of how fast a booming market can change.


If real world assets are not enough, Bitcoin appears to be on another tear, rising close to $50,000 in recent days from a July low of below $30,000. In April it was more than $60,000.

Andrew Bailey, Governor of the Bank of England, has been clear about his expectations for the fashionable digital creation. “A cryptoasset is not money (hence the term cryptocurrency is misleading) and has no intrinsic value because it has no backing,” he said earlier this summer.

Its ultimate value is “highly unstable and could be nothing.”

At least houses can still be lived in when a bubble pops.

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