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Financial Shock (Updated Edition): Global Panic and Government Bailouts—How We Got Here and What Must Be Done to Fix It by Mark Zandi

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8. Home Builders Run Aground

Home building is a cyclical business. Few other industries experience the same roller-coaster ride in demand and price. As clear as this seems in retrospect, it was far from conventional wisdom during the housing boom. For an unprecedented 15 years, beginning in the early 1990s and lasting until the boom’s peak in 2005, home building posted steady annual growth in activity, sales, and profits. Even during the 2001 recession, the industry’s ascent was interrupted only briefly.

The home-building industry seemed to have gotten its act together in the 1990s. From a fragmented collection of small, privately held and essentially local builders, each putting up a few dozen homes a year, the industry had transformed itself, ...

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