One of the startling thinks about the real estate boom were the number and variety of sources proclaiming the soundness of the real estate market.
Once this positive feedback loop starts, it takes on a life of its own and quickly, we are not responding to the underlying market but just participating in the feedback loop.
To see how this happens, look back to the boom and see:
Marginal buyers buy houses > Demand increases
Demand increases > More houses get built >
More houses get built > The stock of the public builders rises
This story inevitably gets reported as “Huge demand fuels builder stock bonanza!” and confirms everyone’s assumption about the health of the housing market. Without understanding the story behind the headline, you’ll just be participating in this feedback loop and not making good decisions, etc.
Remarkably, the housing boom obscured almost everyone’s perspective, sure, home buyers and small investors got caught up in the euphoria, you’d expect that but large, sophisticated investors that should have known better also got caught up in the hysteria.
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