Speculation and accountability in the real estate market

It is a well known fact that most if not all asset bubbles are characterized by significant speculative investment activity (and by this I mean investors with very short investment timeframes and expectations). And this was certainly true of the US housing market (and other overinflated housing markets globally) over the last few years. It’s impossible to know exactly how much of the housing market was driven by speculation, as no agency tracks this issue…and even if they tried, it’s impossible to verify someone’s intent. But I sit back and wonder if our society has gotten too lax on “personal accountability”.

I remember a top Los Angeles real estate agent telling me earlier this year about taking a client to go see a home about to go into foreclosure (the home had been an investment property) and being surprised when the owner’s assistant drove up in an expensive Mercedes with the home keys.

I wondered: if the loan is secured only by the home, it sounds like the owner may be “getting away with something wrong”. He handed his keys to the Bank since the home didn’t make investment sense anymore…but it sounds like he has more than enough money (likely profits from earlier more successful investments) put away for himself…so he will be fine even if his credit gets hit for a while.

And then today, a successful female executive told me what she had viewed as a ‘sign’ of the bubble: a few years ago her maid had purchased a 2nd home for investment purposes!

I’m not an expert on foreclosure law. But it does seem like a lot of people including many walking down Main Street, were unrealistic/foolish with their investments. And I’m not sure our laws and regulations have kept up….so that there is fairness and accountability in the system.