4. Mortgages

At the peak of the real estate bubble, I heard from a lot of people who were absolutely convinced that real estate prices could not go down. “They’re not making any more land!” was their usual refrain.

I knew better because I’d already lived through two regional real estate recessions—one in Alaska and another in Southern California. Until you’ve experienced dropping prices and soaring foreclosure rates, it can be hard to imagine how quickly a real estate boom can unravel.

Well, now we all know better. After peaking in the summer of 2006, home prices nationwide dropped by 34% by the spring of 2012, as measured by the S&P/Case-Shiller 20-city index. The devastation was even worse in parts of Florida, Nevada, Arizona, and California, ...

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