[quote=Cabal][quote]
BTW, I’d like to know what forces could keep housing prices “artificially” low. To the best of my knowledge, nobody has ever tried to keep housing prices “artificially” low (though that would have benefitted society far more than “artificially high” prices, IMHO). I’ve never seen anything that would cause “artificially low” prices, other than insider deals at banks or S&Ls, but those were never considered “market prices.”[/quote]
The forces of fear and greed drive prices artificially low and high, respectively. These are the prime factors for near term valuation on most assets, equities, etc, not fundamentals.
My recollection from 1990 to present day is as follows:
1990-1997: Slight dip, but essentially flat. If you got a good deal in 1990 in a good location, you didn’t see any depreciation. I bought a house in 90/91 with fair market value near 280K for 250K. Based on the occasional sale in the neighborhood, I’m pretty sure I could’ve sold it conservatively for 260K anytime during this period.
1997-1998: Based on trends from the 80s, there was a belief by many in the so called 8-10 yr cycle. Applied to the 90s, the flat prices from 1990-1997should be followed by 2-3 yrs of exceptional appreciation. Many people started to look casually, either to upgrade or invest in rental property. In parallel, people also noticed abnormal movement in the Nasdaq, which removed focus on real estate to some degree. Regardless, prices did start to trend up with above average slope. I don’t recall lines, but any development you visited, the choicest lots were always soldout by day 1. However, you can go back a month later and find 50% of any phase still available.
1999-2000: Crazy years! The dotcom bubble was in full bloom. I remember doing an informal survey at work and concluded 50% of the employees were actively day trading, especially engineers. Anyone breathing was making money, big money. I knew one engineer with a 100K salary that made and lost 1M in one year. As an added bonus, employees in companies like Intel & Qualcomm (Quillionaires) that offered lucrative stock options essentially double dipped. People were euphoric, buying toys and having kids. Eventually bubble popped and many cashed out well in the black.
2001-2002: Interest rates were slashed from 7-8% to under 6% to combat potential recession from dotcom crash and 9/11. At the same time, home designs really improved moving away from large useless LR/DR to large functional kitchen/FR. Attractive features normally reserved for high end homes started to show up in midrange homes, such as walkin closets, large pantry, courtyards, granite, etc. These two factors, coupled with obscene cash from the dotcom bubble, and needs of a growing family really ignited the bubble imo.
2003-present: Housing bubble goes exponential with creative financing and the rest is history.[/quote]
Pretty much in agreement with your timeline, but disagree with fear and greed causing “artificial” lows and highs. Fear and greed are normal in any market and drive prices up and down based on emotions (and technical analysis, IMHO).
While fear and greed do cause the normal fluctuations seen in any boom/bust market, when I refer to “artificial” forces in the market, I’m specifically referring to intervention or actions that are not related to emotions or fundamentals. Actions and policies that are not normally a part of the market (like when an investor/govt/entity corners the market in a particular good), or when credit is ramped up to such levels that there is no possible way for it to be paid back, etc. Governmental intervention or institutional intervention on a large scale — especially over an extended period of time, and also when they run counter to what “the market” wants to do — would be considered “artificial” forces, IMHO.
Not sure if that’s really clear, but there is a distinct difference between “normal” market forces (which include fear, greed, euphoria, etc.) and “artificial” forces, IMHO.
