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Even the Experienced Suffered

I have friends whose families are in real estate and despite years of experience in the industry, they were caught up in the frenzy to get in on the so-called infinite property appreciation rise. Extraordinary stat: Between 1997 and 2006, American home prices increased by 124%.

I also know experienced investors who couldn’t get the loan they needed—based upon the down payment requirement—and they were forced to bail out on investments and lose money. They didn’t want to put down a lot of money only to see their property languish in vacancies and no cash flow. What’s the use of having a property with nobody in it?

How were people able to rationalize a property’s infinite growth? Chalk it up to the ‘castles in the air’ concept perpetuated by the media, investors and speculators, and the real estate industry as a whole. This is an unfounded belief set alongside true home values and rental rates. Jobs weren’t suddenly paying more, and there wasn’t a sudden influx of people into the United States and subsequent demand for housing. Rather, two factors made the real estate market grow and grow: 1) easy money and 2) no credit standards, which is in essence, no regulation.

Actually, as far as housing demand goes, there was a curbing of immigration and general fear that seeped into the culture after September 11, 2001. Restrictions were made on people moving to the United States, and there was an increase in fear towards immigrants from Mexico or Latin America.

I have a friend who said the government should lessen the immigration laws to help ease the glut of homes in the market. Jim Cramer said we might as well give all the people $50,000 so they don’t have to foreclose on their homes. There were plenty of plans and ideas, some outrageous and others ingenious, but nothing was done until things started to unravel. Nothing was done until it was too late. How could so many smart people have missed the collapse?

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