Act I - Euphoria and Riches
The glee and riches as the bubble started to inflate, money started falling from trees, society no longer needed to save for retirement, we could buy anything at the mall we wanted, and we bragged how smart we were to everyone who would listen. Bush said buy a home, the NAR said buy two, and Greenspan said use an ARM. Home prices would never go down, they never had, and you'd be a fool not to buy, no matter the price.
Act II - The Realization and Pop
Some chinks in the armor started to appear - silly little things at first like negative cash flow for investors who bought to rent, unaffordability climbing to record highs, the proliferation of the no-down, no-doc, interest-only, teaser-rate loans to get the last fools in. Some folks started selling at the peak and renting, then told others about it.
Bubble blogs started up, the media started saying "housing bubble" more and more. Hundreds of thousands of unqualified societal losers got their real estate licenses, mortgage ads were all over TV where used car and E.D. ads were before. And then the negative numbers started pouring in - construction down, sales down, prices down, confidence down, REIC stocks down, and perceptions changed - houses were now bad investments that would actually depreciate in value for years to come.
This act ended this week with the horrible numbers, and the NAR admitting (finally) that the bubble was over (and actually ended in August 2005).
Act III - The Crash, Aftermath and Redemption
The final act is now to be written. What does it look like? And what's the movie called?
August 27, 2006
The housing bubble in three act structure - Acts I and II are now over, what does Act III look like?
Posted by blogger at 8/27/2006