The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy

CHAPTER 6

Getting Real about Real Estate

When the U.S. real estate bubble began to burst in 2007 and 2008, a lot of people were taken by surprise. We were not among them. Our first book, America’s Bubble Economy, warned in 2006 that home prices were rising too rapidly relative to incomes, and that of our six big fat, colinked bubbles, the real estate bubble would likely be the one to pop first.

At first, the conventional wisdom (CW) “experts” said it was nothing more than a subprime mortgage problem, but soon the subprime mortgage problems spread to non-subprime mortgages and then to real estate in general, as prices began to fall. No subprime mortgage problem could have done that if we didn’t already have a big fat real estate bubble, vulnerable to a pop.

And even when that happened, the CW experts still told us not to worry; recovery, they promised, was imminent.

So far, that has not happened. Instead, the falling real estate bubble has been very painful. Disappearing equity has put many mortgages underwater. Shockingly, 15.7 million mortgages in May 2012 were underwater, according to Zillow. That is nearly one out of every three mortgages in the United States! The falling real estate bubble has also pulled the plug on the housing-bubble-driven consumer spending bubble, and kicked off the domino multibubble fall that led to the global financial crisis of late 2008 and is continuing to put downward pressure on the bubble economy.

While all real estate is unique to your particular ...