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Dr. Housing Bubble 12/08/08

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Crewleader Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Dec-08-08 11:32 PM
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Dr. Housing Bubble 12/08/08

Home Sweet American Bubble Investing Pie:
Lessons from the Great Depression Part XXIII:
The Worst Housing Crash in American History.

Americans have a strong love affair with real estate. The idea of private property is deeply ingrained in our investing psyche. For a big part, the latest housing bubble would have never happened if people didnt have a fertile mental ground in believing sometimes blindly to the myth of real estate. We are now left with the aftermath of a bursting bubble. Yet is this it? What one year ago seemed to be an extreme scenario now seems to be a daily utterance. That is, this is the worst economic collapse since the Great Depression and the historical data backs this idea.

The shocking unemployment report that came out on Friday cemented the notion that this calamity is only accelerating. Market analyst were expecting job losses for November to come in at 350,000 but when the 533,000 number came out, the worst in 34 years the market was initially stunned. Yet the market rallied and ended the day up. Why? The notion going forth is this is simply the effects of the worst which is clearly behind us. I believe to a certain extent that the NBER announcing that the recession started in December of 2007 is a way to try to convince people that we are closer to the end than the beginning. Of course, there are more valid reasons but take a look at the timing. You mean they had to wait until a few days ago to tell us we have been in recession for a full year? As I discussed in detail in a previous article, each subsequent bailout grows exponentially more troublesome and why would we believe that we are closer to the bottom?

Today we are going to examine real estate during the Great Depression and compare it to our current market. This will be a challenging exercise since real estate during that time was very different from our current situation and data is sparse. But we have pocket markets like the Florida boom of the 1920s that can serve as a template for high flying states like California, Nevada, Arizona, and yes even Florida again. If we believe that we can learn something from history, then it is important to look at a time period in our nations history and hopefully we can learn lessons that will serve us well today and tomorrow.
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Hawkowl Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-09-08 02:18 AM
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1. Good info here
If the Bush Depression is of equal magnitude to the Great Depression, then the article argues that housing prices won't reach bottom in the bubble states (AZ, CA, FL, NV) until 2011. Prices in the Great Depression fell 86% and real estate values now are only down about 50% even though new housing starts are down over 70% and the Great Depression housing starts fell 80% from the peak.

It is indeed going to get worse before it gets better.
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