Barry Ritholtz:
What has been so astonishing about the housing boom is how totally misunderstood its been by people who should have known better, real estate agents, mortgage brokers, developers, and economists. To reiterate our views, half century low interest rates, combined with an investor class burned by the stock market crash, Wall Street scandals and corporate malfeasance on a grand scale saw Housing as a better place to park their dollars.Mean reversion apparently is not understood by many real-estate professionals. From brokers to lenders to developers and home builders, there was a irrational expectation that the "soaring property market eventually would glide to a soft landing." It makes little sense to assume that after home prices more than doubled between 2000 and 2005, they would then mean nicely revert to a normalized gain 5% or 6% a year.
That's the equivalent of stocks reverting to a 10% annual gains after the 1995-2000 run up. In case you forgot, lots of cheerleaders predicted that would happen. Remember, it was a new paradigm, and eyeballs and sticky pages counted much more than revenues and profits.