This week was ‘bubble bath’ week on the Jay Garvens Show. But before you go and find your rubber ducky, keep in mind we’re talking about speculative bubbles—stock bubbles, housing bubbles, etc.—and the metaphorical baths people take when they burst. On this subject, I can think of no better expert than Chandra Hall of Colorado Mesa Realty, whom we were fortunate to have in the studio with us this week. With almost 20 years in the industry, she provided a first-hand account of the last housing bubble and explained why the present increase in housing prices should not be considered a bubble.

The story of speculative bubbles unfolds in the same way as Hemingway described going bankrupt: gradually, then all at once. The bubble inflates slowly, then starts to expand faster and faster until, suddenly, it bursts without warning. Chandra explained that most people don’t know they’re in a bubble as it’s expanding, and therefore nobody thinks to slow down. Everyone assumes rapid increases in prices for a given asset—whether tech stocks, precious metals, houses, or tulip bulbs—are merely expressions of an underlying, organic increase in demand. Prices may plateau, people think, but few ever believe prices will fall, let alone collapse.

Eventually, however, they do, and almost everyone takes a bath. Suddenly the asset people thought was worth a fortune isn’t, and many who borrowed to pay for that asset decide it’s not worth it and simply default on the debt. The repercussions can last for months or even years. People are hesitant to re-invest in an asset that proved extremely unreliable and dangerous.

So how do you know if it’s safe to get back into the real estate market, especially when prices have seen double-digit annual increases that harken back to the beginning of the housing bubble? The best way is to understand the fundamentals of the market and consider whether the increases we have seen in housing prices are warranted. Since home prices dropped by 30-50% or more after the financial crisis, any increase in value is merely covering lost ground. The increase in values over the last few years has been relatively consistent and don’t show the rapid fluctuations typically associated with speculative bubbles.

Also, the price increases we’ve seen are consistent with underlying economic and demographic fundamentals in our area. For one, Denver’s hot housing market is being driven largely by an influx of workers in the tech sector. For another, the so-called “basement dwellers” that have propagated over the last few years (by which I mean Millennials who finished college with massive amounts of debt and moved back in with their folks) are finally leaving their parents’ homes and purchasing homes of their own. And these former basement dwellers are taking advantage of the last key force behind the increase in home values: interest rates are extremely low. It’s very cheap to finance a home, and people are taking advantage of this while they can. This includes not only first-time homebuyers but also Baby Boomers who are retiring, downsizing, and deciding to keep their old home as a rental since it’s just so cheap to carry that mortgage debt.

We were positively blessed to have Chandra Hall with us this week. She not only confirmed a few things I have been saying for years but also taught us all a lot of new things. She brought unique perspectives and insights into the studio and I hope to have her and other guests like her back into the studio to share what they’ve learned with me, as well as my listeners.