Ragged Clown

It's just a shadow you're seeing that he's chasing…


Regrettably, we did little to address the problem

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.

“We 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,” Mr. Greenspan wrote. “Given 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.

one response to Regrettably, we did little to address the problem

Stuart Thompson March 22, 2010

It is such a tough problem. My inner voice has told me for years that house prices can’t go up indefinitely, yet at the same time I watched friends around me see massive gains in the value of their housing assets while I continued to pay apartment rent.

Some of them have sold and made huge profits as a result. Others have seen potential investments crumble to break even. The most unfortunate of them have seen losses, some bigger losses than either of us ever imagined.

I’m very sorry to hear of your own loss.

I’m still paying rent on an apartment, waiting for the market to just feel right for Meaghan and I. Yet it’s still a crap shoot, still a gamble. The houses we would look at involved multiple hundreds of thousands of dollars of investment. There is no guarantee that what we think is a “good deal” will pay out as any kind of profit for us. The only thing I know to do is go with my gut.

It doesn’t feel right yet to me. The price of some of the houses we’re looking at don’t seem to match the value to me. They match some inflated ideal of what the owner would like the property to be worth. Yet around them a mass of inventory is available for ever decreasing prices. I’m hoping that when it’s time I will just “know”. We’ve set ourselves a deadline of about 18 months to seriously evaluate and decide how to enter the market. Wish us luck.

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