Remembering the housing bubble 10 years later

The United States inflated a massive housing bubble in the early 00s that burst painfully and upset the housing and retirement plans of three generations.


Last year I wrote A Brief History of the Housing Bubble, and for anyone wanting a more detailed recap, you can download my 2008 book on the subject. The Great Housing Bubble was a true financial mania, and today, I want to recall the psychology, or as I described it, Southern California’s cultural pathology.

With any financial mania, large groups of people come to hold erroneous beliefs about the current and future value of an asset, and they act on this belief — an action that generally means buying into an overheated bull market. While prices rise, the rally excites everyone to the point of elation.

When people are riding high on bubble wealth, they come to hold beliefs even more absurd than the ones that prompted them to participate in the mania, and it was some of these ancillary beliefs that, at the time, angered me the most.

The Irvine Housing Blog

I first began writing about the housing bubble in the comments on bubble blogs. My first published post on the Internet was on February 27, 2007, I am Irvine Renter (Inventory Cholesterol).

At the Irvine Housing Blog, the readers loved reading about flippers who lost money because these flippers represented the extreme foolishness of the mania — people putting their foolish money where their false beliefs were. These flippers were sometimes the bullish antagonists on housing bubble blogs, smugly chiding the reality-based community for their financial cowardice. Publicly flogging failed flippers was endlessly entertaining and deeply satisfying.special

The Reservoir of Schadenfreude

Irvine Renter, June 11, 2007

Why do we get so much pleasure from failed flips? I can think of no other human endeavor which has engendered so much pleasure in the misfortune of others. In my opinion, the outpouring of schadenfreude we are seeing as the housing bubble deflates is a mixture of Greek tragedy and bad karma. In short, bubble participants should have seen it coming, and they are getting what they deserve.

Schadenfreude is not a spiritually uplifting response. Most religious traditions would counsel us against it. In Buddhist teaching, people are taught to cultivate feelings of compassion for the misfortune of others — feeling empathy and sadness for the slings and arrows of outrageous fortune when they impact another. The near enemy of compassion is pity: it masquerades as compassion, but it has an element of separateness which detracts from the sense of Oneness with all things. Joy is good: Sypathetic joy, the joy in the happiness of another, is another pillar of a spiritual existence. However, joy in the misfortune of another — schadenfreude — is not a skillful behavior leading to happiness. Even knowing that, many of us feel this joy anyway. Why is that?

I recognized financing terms were creating artificially high prices early on. By 2004, I was telling people I knew this was a problem which would cause a market crash. I can’t tell you how many people looked at me like I was crazy. “Real estate always goes up,” I was told. “The government would never allow prices to crash,” I was told. “If you don’t buy now you will be priced out forever,” I was told. You know the intoxicated language of those who imbibed the kool aid.


If these statements had been offered in a defensive manner of someone who is being made to realize they made a serious mistake, I could have felt sympathy for them. I would have been able to disarm their defensiveness and helped them see the light. However, what I generally got was a smug assuredness of someone who truly believed they were right and I was wrong; not just was I wrong, I was a stupid, cowardly fool who did not have the brains or the courage to take the free money being given out.

During the bubble rally, those of us who chose not to participate were labeled as “bitter renters.” lowly_renterWe were labeled as envious of the good fortune of homeowners as their property values rose, as they took on insane amounts of debt, and as they learned to finance a lifestyle well beyond their means. This was undoubtedly true for some, but in my opinion, this is not the primary reason so many derive so much pleasure from the misfortune of those now suffering from declining property values.

These same people who chided us for being envious actually wanted us to be envious: they wanted us to know they were the winners in our competitive society; they wanted us to view them as superior. This need to feel superior is undoubtedly a manifestation of Southern California’s Cultural Pathology, but it more than that. This act of putting themselves above us created a separation which prevented us from feeling sympathetic joy for their good fortune, and it will prevent us from feeling compassion for them when they fall.

In our collective unconscious which manifests in our dreams and our mythology, water is often symbolic of our emotions or our emotional state. Have you noticed people are often categorized as deep or shallow? If you are in debt you often feel “underwater,” etc.

Anger is much like water: if not given an outlet, it will fill a reservoir until it reaches a breaking point and is expressed in a flood of emotional rage. Each encounter with a pathologic, kool-aid drinking housing bull over the last few years has added to this reservoir, and reveling in failed flips is an outlet for this pool of toxic emotional waste.caddyshack_poolturd_ihb

There is an element of tragedy in every disaster, but financial bubbles are some of the most interesting because they are completely man made. They are created by the individual decisions of buyers who are motivated by greed, foolish pride, and a false sense of security. Each of these people should have known better. Many of them were warned of their impending doom and chose to go down the path to the Dark Side.

Newton’s Third Law states, “For every action, there is an equal and opposite reaction.” The Law of Karma states, “For every event that occurs, there will follow another event whose existence was caused by the first, and this second event will be pleasant or unpleasant according as its cause was skillful or unskillful.” Do you believe the behavior of buyers during the bubble has been skillful?

Whether it is Newton’s Third Law, Karma, or a Calvinist form of retributive justice, as this bubble deflates, all the participants in this bubble are about to experience a great deal of hardship. Like many of you, I will enjoy their suffering until my reservoir of schadenfreude is emptied. For the sake of my own personal spiritual well being, I hope this happens soon so I can get back to feeling compassion for my fellow man.


For as much as the housing bubble frustrated and angered me, something positive came out of it for me. It’s very rare in life when an opportunity to help tens of thousands of people arises. With the writing at the Irvine Housing Blog continued here at the OC Housing News, I was able to reach several hundred thousand people (according to Google), and many of those people postponed buying homes in 2007 and 2008. I know because many of those people worked with Shevy and his team since then, and many others personally thanked me over the years. As I look back on my life, I consider my work writing about the housing bubble one of my greatest accomplishments.

Encores are tough. Office work that used to be satisfying feels devoid of meaning. Some opportunities over the last few years piqued my interest, but none gripped my soul. Most of this year, I worked to start a new business I believe will rekindle those feelings of contribution, but as of today, the business is still more intention than reality.

Will the housing bubble be my “glory days”? If so, I could do worse.

[dfads params=’groups=3&limit=1&orderby=random’]
[dfads params=’groups=23&limit=1&orderby=random’]
[listing mls=”OC15186596″]