From an investment perspective, speculative bubbles (and the resulting declines) are excellent trading opportunities.

Since real-estate is relatively illiquid and has high carrying costs, timing that market can be hazardous. Of course, with the advantage of hindsight the entry & exit points seem “obvious” now, but to enter the housing market at that time (2002-03) without such knowledge carried a substantial amount of risk.

If you already owned a house at that time, then selling when prices were “overvalued” on a fundamental level reduces your potential profits. No one knows when the bubble will pop, or how high it will go, but history shows that the mania around the peak is extreme. Generally, its best to ride the price wave to the top, and then sell when it starts to break down. This way you don’t miss out on all those irrational profits, even though you don’t catch the exact top. Of course with RE the exit isn’t a mouse click away, but it also doesn’t crash overnight, so during the bubble one would develop a plan to sell when things start to breakdown (e.g. house is prepped for market, relation with realtor already established, willing to accept pricing sligtly under market to move quickly, etc.). Thus, I think someone who sold too early might have a little regret (though they still made out very well), I don’t think it is reasonable for a renter at the time to feel bitter about “missing out” since the risk/reward ratio was also high at the time, with the threat of prices breaking down at anytime. Also, contrast the potential lost opportunity of prudent renters (with zero cost), with the very real loss of those that bought at the peak.

On the flip side, those who knew about the bubble and waited patiently whilst developing trading strategies for the inevitable crash, thus getting in at the optimal time for shorting the new losers of the mania (mortgage lenders, builders, etc.), made out like bandits with little risk.

The good news is that many readers who didn’t participate either way are much more aware of these opportunities in the future, and can plan accordingly and profit greatly. Such a lesson itself might be more rewarding to the prudent renter then picking up a deal on a house when the market bottoms.