Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
Housing Bubble: Toil and Trouble
http://www.realestatejournal.com/buysell/markettrends/20070306-lahart.html?rejpartner=mktw
http://www.realestatejournal.com/buysell/markettrends/20070306-lahart.html?rejpartner=mktw
Seven years after the stock-market bubble busted, the troubles in the housing market look strikingly familiar. In fact, everything is going according to the textbook -- the textbook in this case being Charles Kindleberger's 1978 classic, "Manias, Panics, and Crashes."
Mr. Kindleberger found speculative bubbles tended to follow similar patterns. First, there is some "displacement" -- such as the development of the Internet or a prolonged period of ultralow interest rates -- that radically improves the outlook for some area of the economy. People take advantage of the opportunity, fueling a boom that is fed by progressively easier access to cash. At the height of the bubble, there's "pure speculation"; assets are bought to quickly sell them again at a higher price -- day-trading in 2000, condo-flipping more recently, tulips long ago.
The speculation eventually runs its course and in the ensuing downturn, swindles come to light. That leads to "revulsion." Lines of credit dry up and regulators, Sarbanes-Oxley style, rush to shut the door of the empty cow barn. In the worst cases, selling panics follow.
Revulsion is where housing appears to be.