Looks like me and Greenspan both learned the wrong lessons from previous housing crashes.
The former Fed chairman also acknowledged that the central bank failed to grasp the magnitude of the housing bubble but argued, as he has before, that its policy of low interest rates was not to blame. He stood by his conviction that little could be done to identify a bubble before it burst, much less to pop it.
â€œWe had been lulled into a sense of complacency by the only modestly negative economic aftermaths of the stock market crash of 1987 and the dot-com boom,â€ Mr. Greenspan wrote. â€œGiven history, we believed that any declines in home prices would be gradual.
I learned a different lesson though.
The housing crash in the UK at the start of the 90s was terrifying.It came after a long, sustained boom where house prices just went up and up.
I know a bunch of people with 120% mortgages that lost over half the value of their houses. Many lost everything. We bought our apartment at half the price that the previous owners had paid three years earlier. We felt very smug timing the market like that. We still lost money because the prices kept falling and falling.
There was a boom in Silicon Valley when we arrived. But I had learned my lesson from the boom/bust in the UK – house prices can’t go up indefinitely! Eventually they are going to come down with a crash. When friends of mine bought a house for about $400k, I thought they were crazy. When they sold it for about a million several years later, I decided that I was the crazy one.
I concluded that my lesson was wrong. Housing prices can go up indefinitely. I bought a house.
But my lesson wasn’t wrong. It just wasn’t right yet.
Thanks Mr Greenspan.