Sunday, March 16, 2008

Credit Crunch Characters (1) - House Buyers

The Credit Crunch is still spreading around the world. These disturbing events are the consequence of actions by a wide variety of characters.

The first group of actors to arrive on the credit crunch stage were the home buyers who pushed house prices up to record levels. They believed that house prices would always go up and never go down. Housing is the ultimate safe investment. Their faith has now been destroyed as house prices have fallen dramatically over the last year.

My father used to say,

When times are good, people think they will last forever.
When times are bad, people think they will last forever.
He had observed this with his own eyes. His Father had brought a farm during the post-war land boom for £20 per acre in 1925. The Great Depression destroyed that optimism and by 1940, the same land could not be sold for £12 per acre. The price only got back to £20 per acre in the mid-1950s, after the wool boom caused by the Korean War. Thirty years went by before prices returned to the level that they had been in the previous boom.

For the rest of my father’s long life, land prices continued to rise, but he knew the boom would not last, just as the slump in prices did not last. Nothing lasts forever. Good times and bad times always end.

Home buyers in America who thought that house prices would always go up are finding that they were wrong. The same thing may be now happening here, as the steam has gone out of the property market.

Home buyers sspeculating on ever-rising house prices were foolish.

This full series is here

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