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Was “Flip That House" A Sign Of An Upcoming Mortgage Crisis?

In a 2005 meeting between economists and then Federal Reserve Chairman Alan Greenspan as the housing market was continuing to inflate a chief economist named David Stockton remarked about how he had come across a television show where the “gist of the show was that with some spackling , a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis".

See Huffpo article- Fed Economist to Greenspan in 2005.

As a viewer of that program and the many others like it I have to agree. At the time I can recall being absolutely flabbergasted that an 800 sf home in California somewhere sold for over $400,000.00 after repairs with profits of about $150,000.00 for the investors. Or another one that was purchased for around $400,000.00 and some odd and sold later for over $1,000,000.00 It seems it was always a shock if they sold and the ones that didn’t sell were the only ones that really met expectations. If you ever watched it, you have to admit that it was insane ridiculous.

With that kind of insanity going on, what did we all expect?

While the housing crisis has been painful for many, we all need a place to live and having to pay over $400,000.00 for 800sf of living space could never be sustainable long-term (at least not now….wages would have to increase dramatically!)

And the bubble finally popped.

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