A New Shady Practice….
I am not usually one to delve into conspiracy theories especially without solid proof. However, I have a theory that could be likened to the one that would suggest smoking addiction was a product born of secretive big-tabacco board room meetings.
During the 1990’s the real estate market in So-Cal lost nearly 40% (inflation adjusted) over a 7-year stretch. This slow crash was seen by many as a stark warning not to discount the importance of asset diversification - Still, as my theory begins, there were some who saw this slump as a glaring opportunity.
So - what is it that typically brings prices down in a free market (econ 101 here) - that’s right, lack of demand. Now I realize that there are often many things that can influence demand, but simply put; when nobody is buying, prices are falling. In the mid-90’s housing prices in some California areas fell so hard, that many people just up and walked away - accepting bankruptcy over the continued decline in their investment (Remember, many of these were “A-paper” borrowers). Stuck with properties with auction values less than 50% of their original purchase price, lenders were getting hammered in this exodus.
