Reader Question: What About the Upside of the Bubble?

I was going through my public “To-Do List” when I came across this user submission:

Talk about the upside of the bubble in terms of neighbor quality

I really enjoyed one aspect of Seattle’s bubble. I loved the “rising tide” effect that seemed to be transforming my neighborhood. Hard to quantify. More of a qualitative discussion.

I really enjoyed newer buyers who invested in their homes and yards, doing long-overdue maintenance and painting, as well as some remodels and improvements, bumping out some long-term neighbors who were letting their paint peel off, let their yards go, parked jalopies on the street, burned trash in their fireplaces to save a buck, etc.

Not trying to be judgmental, but I do miss that dynamic, that feeling that the neighborhood was on the “up and up”.

It’s an interesting observation that is similar to my post from last week: Foreclosures Benefit a Neighborhood, Not Hurt It, only from the pre-bust perspective.

While many neighborhoods no doubt felt like they were improving during the bubble, the problem was that most of the “wealth” that was fueling these improvements was illusory. Rising equity was being immediately converted into debt and spent on things like “long-overdue maintenance and painting, as well as some remodels and improvements,” in addition to expensive cars, vacations, and other creature comforts.

I’m reminded of Douglas Adams’ flying party, which I posted about a few times before the bubble burst and the economy collapsed, taking with it all of that imaginary wealth.

The longest and most destructive party ever held is now into its fourth generation, and still no one shows any signs of leaving.

The problem of when the drink is going to run out is, however, going to have to be faced one day.

Sure, it would have been a blast if the party could have gone on forever. But it couldn’t, and it didn’t.

I’m interested to hear your take on this reader’s comment. Were there positive aspects of the housing bubble that could somehow be brought back without the all of the unsustainable economy-destroying side effects that came along for the ride last time?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

21 comments:

  1. 1
    Blurtman says:

    I fnd that when my home appreciates in value, I beat the servants less frequently.

  2. 2

    I find that when my home appreciates in value, I receive several offers in my mailbox each day telling me I’m pre-approved to refinance from an out of state lender with wildly low interest rates.

  3. 3
    wreckingbull says:

    “bumping out some long-term neighbors who were letting their paint peel off”

    What does this mean? Did the bubble really cleanse neighborhoods of those who don’t maintain their homes? I never witnessed this. I saw the same old crap at much higher prices, nothing more.

  4. 4
    mike says:

    In my own neighborhood (Didn’t live here then, but know of the effects) old homes were torn down and replaced with much higher end houses. Unfortunately a lot of them were craftsman atrocities, as was the style back then. Glad that’s not happening anymore.

  5. 5
    Erik says:

    The part I miss most about the bubble is refinancing my house and blowing it at the bar, going on vacations, eating out at restaurants, etc. When I ran out of money, I was able to refinance again and get more fun money. At the end I just deleted my debt with a short sale.

    For me, this housing Bubble happened at the right time. I will probably never get that opportunity again.

  6. 6

    RE: Erik @ 5

    What the Bubble Did for Me

    Was prepared me for the future some predicted, but most called us nut cases predicting it. It got me a big cash draw from a divorce home sale. It got me keeping my debt small and my credit/equity losses smaller too.

    Home principle was never suppose to be a cash machine ending in delayed foreclosure or other principle forgiveness. I’m grateful most of my life was spent before zombie interest rates for savings were considerred “good politics”. I’m glad most of my life was spent in an America whose future depended on what it made not how much money it could borrow, temporarily.

  7. 7
    Dirty Renter in Banjo Country says:

    RE: Blurtman @ 1
    It’s the only way to improve morale.

  8. 8
    Tim McB says:

    I know many are taking this subject as a joke, but to highlight one aspect the user alluded to, higher income neighbors moving into our Seattle neighborhood statistically will bring more eager, capable, and motivated children to attend our neighborhood school with my daughter. I’d count that as a positive.

  9. 9
    Erik says:

    RE: Tim McB @ 8
    I was being serious. I didn’t get to live a real nice lifestyle, but it was much improved since i could just take out home loans. At the time, I had just graduated college and bought a house. I was struggling to make payments, so I refinanced and got money to have fun and live a nicer life. I ended up not having to repay my debt. I think that is a direct benefit of the housing bubble for me. My friends were struggling cause they didn’t want to refinance. I just refinanced and got lucky that i didn’t have to repay my debt. If I had to, i’d be in a world of hurt.

    During the crash, I closely watched this website and read everyone’s comments. I was able to buy at what I think was the bottom for my area. I got an awesome deal. My new place sold for $305K in 2007 and I got it for $92.7K. I used the income from my rented short sale to fix my new place. It really worked out for me and created a much better financial situation for me. Today my stress level is low and I can partially thank the evil housing bubble for that.

  10. 10
    Tsuru says:

    Can I just point out that the bubble never burst, it just shrank somewhat and now it’s being reinflated? The real bubble pop is coming, let’s see what people think of the bubble after it’s burst properly.

  11. 11
    Erik says:

    RE: Tsuru @ 10
    I don’t see that happen based on this market. The only way this could happen if another country attacked us or crashed or some other catastrophic event happened. I think we will see the market go back to the 2011/2012 low at the worst case scenario.

  12. 12
    mike says:

    Overall, I’m more irritated by the bubble because it was in full swing just as I reached typical home buying age. I ended up renting another 7 years waiting for this the market to show some signs of bottoming. Last year I was able to buy a house I like for about 20% off peak pricing, so there was some benefit.

    On the other hand, by not buying my wife and I were able to move across the country and take better career building jobs for a few years before coming back to Seattle. While that wasn’t a benefit of the bubble per say, it did keep us from being tied down to one location through the following recession.

  13. 13
    gxar says:

    One benefit of the bubble was that by 2009/2010 there was a great selection of very nice houses for rent. Houses that had been remodeled during the bubble with all the nice amenities. Fantastic kitchens with granite counters and fancy gas stoves, nice bathrooms, redone wood floors and excellent landscaping.

    We are enjoying renting one of those houses for quite a bit less than it would cost to own the place while the owner waits for the price to appreciate to sky high levels. I am sure that will happen soon, looks like we are getting into another bubble any time.

  14. 14
    Blurtman says:

    RE: Erik @ 9 – Greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.

  15. 15
    macDog says:

    The Fed has already made it very clear it will keep RE inflated no matter what. The house always wins so I’ll play along with it up to a point.
    The last bubble was super obvious, I was a renter (would not touch RE with a 20′ pole) and invested in other assets. I made more money while the bubble popped and ironically bought a house last year. Owning land is innate and can’t deny that primal part of myself. Good to own tangibles when there is a currency war. Bubbles are very wonderful when you run with the herd and exit at the right time.

  16. 16
    Peter Witting says:

    I was able to refinance in 2005, and took out enough money to pay for a divorce – which was an excellent investment, BTW. Outstanding ROI right there, people!

  17. 17
    Erik says:

    RE: Blurtman @ 14
    I was once told by an old machinist that was doing fairly well financially that if you make good financial decisions outside of work, that matters more than your income. This was a great financial decision for me and now I have a low mortgage and i’m able to work less because of it. My plan for life is to make the best financial decisions I can for myself. That’s why I am on here trying to gather knowledge and learn. Being able to buy and sell houses at the right time is a great example of making good financial decisions outside of work.

  18. 18
    Jonness says:

    The bubble forced me to save longer than I otherwise would have. So I was able to buy a new custom home on 230′ of Puget Sound waterfront.

    There was only one right way to have played this bubble, and that was to have lived frugally and saved as much as possible while waiting for it to collapse.

  19. 19
    Ron says:

    “I really enjoyed newer buyers who invested in their homes and yards, doing long-overdue maintenance and painting, as well as some remodels and improvements….”

    What I liked about the bubble was how it made our neighborhood buzz with activity. That activity is back now – abandon lots and urban blight are being cleaned up. The bubble provides people who want to take risks the opportunity to get ahead or, lose it all. I’d been renting for 5 years and along came the bubble and easy money. I bought a rental with about 5k down – shocking! then I bought another with cash from a credit card. Shocking again! Both homes have been fixed up and look far better today.

    I see many of the positive aspects of the bubble coming back without, hopefully, the risks associated with over leveraging. I think this is a long term trend unless there is some kind of a shock to the system as one comment above pointed out.

  20. 20
    Topdog says:

    When my home appreciates, I splurge on some pink flamingos, heck if it is a really hot market, might even get some pink ponies.

  21. 21
    fubarrio says:

    RE: Erik @ 9 – just, wow. not like we aren’t paying for that. but, at least someone here is being honest about how self-involved and self-serving most people really are.

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