June 10, 2009
if you build it...they will come...
A broad mythic idea lights up this movie: in America, you only have to be in the right place at the right time. They will come.
There's something about America.
We dream of striking it rich (more about this in my coming book).
There was more than only greed and speculative fever behind the housing boom. More than easy mortgages and anything-goes lending.
Many believed in the American myth of the windfall -- "making it big" by hitting it lucky. This is more than only greed. Greed is taking too many freebies from a bowl at a store, or overcharging a customer (remind you of hospitals?). This mythic American sense is more...transcendent than greed. It's being in the center of things. Being in -- with it. It isn't only money -- it's the glamour of being in the American moment -- of sharing the togetherness of the moment and the good feeling.
Many believed that more and more people would move into the desert near Las Vegas, or bid houses ever higher in California, because they were, up till then.
While we tend to focus on factors we think enabled and fed the bubble in housing, we forget that something more fundamental is at work.
Beliefs are more powerful in their economic effects than interest rates or even basic human conditions like avarice.
If people believe the economy will grow, it will grow, and if they believe it will weaken, it will weaken.
If people believe lower interest rates will create new growth, then that belief will help cause that outcome.
So long as people believed housing prices would go up, it was very likely new ways would be found to enable the continued rise.
Obstacles like interest rates or mortgage terms are less significant than beliefs. If there had been no interest-only or negative-amortizing loans, buyers would have simply found another method to fulfill their beliefs.
They might have tried joint-ownership purchases of houses in cooperative buying in order to continue the price rise -- they would do whatever it took, so long as the belief in ever-higher prices remained.
The market topped out because it stalled for lack of sufficient warm bodies in some locations (more homes were being built than there were people wanting to live in them in certain places and even speculators noticed this in time), and this scattered flattening of prices got enough media attention to spread a new belief -- that prices would flatten or even fall in many places -- then this new belief set in motion a broader outcome.
Here and now we have decided together on a modest recovery with continued job losses, but no one can truly predict the outcome 6 months from now because the beliefs will evolve and change as we go along.