The term bubble has been following eonomists and investors around for a while now, and it certainly has had its time in the spotlight over the last decade in regards to the real estate industry (but is certainly not unique to just the real estate industry).
A bubble is what happens when people believe that a product will continue to rise in value, and essentially will not stop rising – even after it is far beyond the point of its actual value (depending on the metrics of which you determine value). A bubble essentially is something which has value based on speculation. How valuable is speculation? It’s worth its weight in air – which is why a bubble can pop – because once the speculation is gone from the value, it POPS! And when that pop happens, the air doesn’t just slow trickle out like a leak, but it falls FAST! And in the case of areas like Phoenix, Florida, and Las Vegas, perhaps it even collapses on itself below where it was valued before the bubble begins to take off (which is why so many homes are underwater).
Bubbles are not necessarily good or bad for an economy, because in the end it will ultimately stabalize. Bubbles are surrounded on both ends by an abundance of prosperity and then desperation. When all is said, the prosperity which is experienced during the peak of the bubbles are typically equal to the despair experienced afterwards.