One Muggle: All the same hype that accompanied the dotcom era are present here as well.
Remember, “it’s the New Economy, stupid”? All of the old business metrics were to be swept away by the new internet model. Profits didn’t matter, revenue didn’t matter; these would be replaced by a whole new set of meaningful benchmarks.
And so we had market capitalizations of internet startups exceeding a billion dollars, but the companies themselves had no revenue and no profit and no means of acquiring/achieving either. Remember pets.com? Kozmo.com? eToys? At some point during the run-up, these companies had stock prices in the hundreds of dollars per share and astronomical P/E ratios with no serious financial underpinnings.
Stop me if any of this sounds familiar. We now have skyrocketing home prices juxtaposed with stagnant or falling wages, overwhelming household debt loads and cheap, easy cash.
You’re right about the NASDAQ bubble in that it took over two and a half years for it to fully bottom out and then begin the painful journey back up. I don’t think we’ll see bottom on the RE market for at least another 18 months. And I think the fallout in the mortgage banking industry will take years to correct. You better bet that underwriting standards are going to get a lot more rigorous.
