In light of the recent housing market crash, I thought I'd share an investing definition with you. The word is "froth." Here is how Investopedia defines froth:
Market conditions preceding an actual market bubble where asset prices become detached from their underlying intrinsic values as demand for those assets drives their prices to unsustainable levels. Market froth marks the beginning of unsustainable rates of asset price inflation.
In the run-up to the subprime mortgage crash, home values reached an unsustainable level. The froth on the mortgage market rose, and then it disappeared because, after all, it's just the extra stuff at the top.
You might also include mortgage backed securities in that category as well, since they grew in value ahead of the current mortgage market crash.
image credit: US government
Comment Preview