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Everyone Wants To Live Here... Not!

Posted: 26-12-2008 | Views: 184

The Great Housing Bubble witnessed many foolish ideas and beliefs about real estate. Among the most foolish was the idea that prices went up because everyone wants to live wherever they are. When rational arguments fail to explain something, it is only natural that people will start making things up.

Everyone believes they live in a very desirable location; after all, they choose to live there. People who make this argument fail to understand that the place they live was just as desirable before the bubble when prices were much lower, in fact, probably more so.

What is it about their area that made it two or more times as desirable during the bubble? Of course, nothing did, but that does not stop people from making the argument.

In California, people could claim it was the climate or the culture that attracted people to the area and induced them to pay ridiculous prices for real estate. There is a comforting conceit contained in that belief which is probably why it was so widespread.

There is a certain emotional appeal to believing the place you chose to call home is so desirable that people were willing to pay ridiculous prices to live there. The reality is prices went up because people desired to own an asset that was increasing in price. People motivated by increasing prices do not care where they live as long as prices there are going up.

Prices did not go up during the Great Housing Bubble because everyone wanted to live in certain areas. Prices went up in almost every market. This had nothing to do with the desirability of the neighborhood or the general location. It had everything to do with loose credit and greedy buyers pushing prices higher and higher.

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