What fascinates me more than another obvious bubble — I’m old enough to have been here before — is the way people talk about it. Everyone, from investors to NIMBYs to YIMBYs to my neighbor up the street, has an oversimplified belief about home prices, one fully supported by their take on the data. As a student of Daniel Kahneman’s “Thinking, Fast and Slow,” it’s easy to recognize the motivated reasoning.
Take this extensive excerpt from a Wall Street Journal article:
That was 2016, during the heady days when the American property boom was just getting going. Even then, the truth was obvious to anyone who knew what to look for: The boom had turned into a bubble—and was likely to end very badly.
The bubble proceeded to get even worse, though, because no one wanted the music to stop. American developers, home buyers, real-estate agents and even the Wall Street banks that helped underwrite the boom all ignored warning signs.
Developers found ways to obscure the amount of debt they were holding, with the help of bankers and lawyers. Buyers who suspected the property markets were overbuilt bought more anyway. American and foreign investors seeking juicy returns flooded developers with funding.
The cheerleaders were operating on a seemingly bulletproof assumption that America’s government would never allow the market to crash. American people had invested the majority of their wealth in housing. Letting the market tumble could wipe out much of the population’s…
