The Ultimate Money Guide for Bubbles, Busts, Recession, and Depression

Chapter 4. HOUSING: HOW TO ESCAPE THE GREATEST BUST OF ALL TIME

Dad grew up in Harlem, and his family couldn't afford to buy a home. So most of what he knew about buying and selling real estate was based on his research or on what he discussed with his clients. Here's what he told me:

One of the greatest blunders people made in the 1930s was to blindly assume that prices were already so low they couldn't possibly go any lower. In reality, the value of their real estate, stocks, commodities, and virtually every other asset didn't stop going down at some particular level that appeared to be "cheap." Nor did it stop falling just because it matched some historical price that was considered low. The end of the price declines came only when the natural economic forces driving them down were exhausted; when most of the bad debts were cleaned out and the economy finally stabilized.

This was also true for home prices. But in the Great Depression, none of my clients owed money on their home, and among my relatives, I cannot remember anyone who took out a mortgage until after World War II.

In the 1920s and 1930s, mortgages were not nearly as common as they were after the war. And I know for a fact that even the people who did take out a mortgage never paid a variable rate. The rate was always fixed. So they could plan on making the same exact monthly payments year after year.

In those days, we had big troubles on the farms. But in the cities, most of the big speculation was tied to Wall Street, ...