No Repeat of Bubble Burst?

No Repeat of Bubble Burst?

Mountain Man and City Girl

The Blogsite of Jewell Real Estate Agency, Wildwood Crest, NJ 609-729-8505

January 4th, 2010

As the United States slowly pulls itself out of the depths of the recession, many still wonder how it happened and whether it can happen again? Good questions, and the answers all have to do in some way with real estate.

The biggest cause of the housing bubble was that the Federal Reserve and then chairman Alan Greenspan did not recognize what was happening soon enough. But they took the course that seemed logical at the time and, after all, hindsight is 20-20.

On the heels of the September 11 attacks, the Wall Street scandals, and the 2001 recession, the Fed felt that low interest rates were needed to get the economy rolling and to create jobs. And it did. However, housing prices started to escalate at the same time and by 2003 they took off. Here in Cape May County, New Jersey housing prices were rising 3% per month in 2004 and part of 2005. That lasted for a year and a half as speculators bought everything in sight at interest rates in the 5 to 6 1/2% range.

The prices kept rising during that period because, let's face it, few thought that they would stop going up. Lenders and appraisers bought into the same scenario, so everyone just kept doing business as usual and moving the market along. Folks got mortgages based on real estate values continuing to rise. When they stagnated, then dropped, many got caught with their pants down.

Now as Ben Bernanke is up for his second term as Fed chief, the focus seems to be not so much on simply more regulations, but on more effective and smarter regulations to keep from another period of real estate speculation. Through recent experience, the decision-makers are hopefully aware and prepared the next time that our economic freight train is in danger of running away.

Interest rates are still near historic lows and expected to stay that way, at least in the short term. That has to be balanced with the threat of inflation, which would result in another possible recession. We'll have to see what the future holds. We've got our fingers crossed.

- Mountain Man and City Girl

http://www.MountainManandCityGirl.com