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Why were house prices going up like crazy during the housing bubble?
Posted on 9/18/17 at 6:16 pm
Posted on 9/18/17 at 6:16 pm
It had to be more than just supply and demand, right?
Like in this scene in The Big Short, the realtor woman was saying "I sold that house for $350,000 the year it was built. Two years later $480, then $585 maybe eighteen months ago. This couple bought it for $650 last year."
The Big Short (2015) - FrontPoint Partners' investigation in Florida & first trade
Why didn't the system correct itself? Why didn't the stupid high prices deter people from buying more houses?
Did the bubble burst because people couldn't pay the mortgage or did they just run out of suckers to buy more houses?
Like in this scene in The Big Short, the realtor woman was saying "I sold that house for $350,000 the year it was built. Two years later $480, then $585 maybe eighteen months ago. This couple bought it for $650 last year."
The Big Short (2015) - FrontPoint Partners' investigation in Florida & first trade
Why didn't the system correct itself? Why didn't the stupid high prices deter people from buying more houses?
Did the bubble burst because people couldn't pay the mortgage or did they just run out of suckers to buy more houses?
Posted on 9/18/17 at 6:21 pm to Langland
quote:
Why didn't the stupid high prices deter people from buying more houses?
People don't buy houses all cash. They use leverage. As long as you can "afford" the monthly payment on bigger and bigger mortgages, the price will go up as those folks bid up the price.
quote:
Why didn't the system correct itself?
It did. The market crashed remember?
quote:
Did the bubble burst because people couldn't pay the mortgage or did they just run out of suckers to buy more houses?
Both. Going back to the top. For some, their loans were teaser rates that adjusted up. What was once a mortgage they could pay became one they could not.
A domino effect occurs. Those mortgages fail, which causes money to suck out of the economy leading to job loss, causing more mortgages to fail and so on.
This post was edited on 9/18/17 at 6:24 pm
Posted on 9/18/17 at 7:23 pm to Langland
You also had 100% financing and stated income loans (a/k/a "liar loans") where you could claim OT baller salary and it was virtually accepted without question.
Posted on 9/18/17 at 7:26 pm to Langland
It's human nature. Speculative bubbles have been created and burst as long as investments/gambling have been around.
tulips and bubbles
Humans have an instinctive urge to take risks to acquire goods/power/money/whatever. As long as the objective continues to increase in value, people continue to buy it regardless of the cost if they expect the selling price increase further. It's not a question of whether the house is worth the asking price or cost or value, it's a question of whether the buyer believes the selling price will be higher in the future.
Stocks, houses, tulips, gold, or whatever have values based on what people think other people will pay for them later. As long as enough people believe prices will rise, they will.
tulips and bubbles
Humans have an instinctive urge to take risks to acquire goods/power/money/whatever. As long as the objective continues to increase in value, people continue to buy it regardless of the cost if they expect the selling price increase further. It's not a question of whether the house is worth the asking price or cost or value, it's a question of whether the buyer believes the selling price will be higher in the future.
Stocks, houses, tulips, gold, or whatever have values based on what people think other people will pay for them later. As long as enough people believe prices will rise, they will.
Posted on 9/19/17 at 3:41 pm to Langland
The government decided everyone deserved to be a homeowner. They encouraged and incentivized lenders to oblige.
They later found out that in fact, everyone does not deserve to be a homeowner.
They later found out that in fact, everyone does not deserve to be a homeowner.
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