"History is a wonderful thing, if only it was true"
-Tolstoy

Sunday, August 19, 2007

Bubble Bubble ... toil & trouble

"The Unforgivingness of Forgetfulness"

Synopsis:

But what could be a more solid investment — literally and figuratively — than real estate? It was the perfect antidote to dot-com stocks. As a result, the popping of one bubble may have helped lay the groundwork for another.

Besides, home ownership has long been seen as a worthy goal in its own right. “Owning a home lies at the heart of the American dream,” President Bush has said. “It serves as the foundation of many Americans’ financial security.”

Lenders created an array of mortgages to get people into homes for the first time with modest initial payments. With interest rates so low, there seemed little reason for people to hold back.

House prices had been rising since pretty much forever, people were told, and they were rising faster now. The median house price more than doubled from 1993 to 2005, in nominal terms, while incomes rose just 49 percent. Only some of the increase in home prices could be attributed to falling interest rates and population growth.

Real estate became an easy ticket to a nationwide party where people seemed to be making life-changing money, spending their downtime watching real estate show like “Flip This House,” surfing Web sites like condoflip.com and reading books like “Are You Missing the Real Estate Boom?” by David Lereah, chief economist for the National Association of Realtors.

And the real estate boom was a far more inclusive party than the tech-stock bubble. People then needed to have the money to buy the stocks that, with luck, would rocket to the moon, or work at a hot company that was doling out stock options to employees.

Everyone else could only press their noses to glass, watching with envy.

But with real estate, homeowners needed to do little more than think about the soaring value of an asset they already owned. People who had been renting, meanwhile, could easily take the monthly check they had been sending to their landlord and turn it into a mortgage payment. A down payment wasn’t always necessary.

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