Around mid-year 2006, I was chatting with an acquaintance at a local coffee shop and he was telling me the story of a friend of his in California who had strung together a series of home purchases. She would buy one home, take a second mortgage on the property, then use the money from the second to acquire another property. She was so successful at this game that she had accumulated something like a dozen Southern California properties; all but one (where she lived) were rentals. It didn’t appear the rental rates were covering the mortgages, but that was all right to the woman because home values were skipping higher every month. On paper she looked like a millionaire.
My friend, who was a successful businessman, wasn’t entirely comfortable with his friend’s real estate position and asked me what she should do. I told him the outlook for residential real estate had turned sour and she should start selling as quickly as possible.
In retrospect, if she had followed my advice, she probably would have escaped the collapse of the residential real estate market in 2007. But, to illustrate how brilliant I really am as a pundit, that same year, I found myself being interviewed by a local publication and was asked what I thought about the subprime mortgage market, which was suddenly making a lot of people nervous. My response went something like this: Subprime only represents a small portion of the mortgage market. Factually, I was right, but my implied message was off the ...

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