The Stages of Truth

From CBS Marketwatch, we have No surprise : End of housing bubble should have been obvious to everyone.

In response, policymakers and lenders devised ways to make borrowing easier, since interest expense is the biggest cost of owning a home. These helped a bit - but they really didn't kick in until the Federal Reserve began cutting interest rates in early 2000, eventually pushing them to 45-year lows by 2003.

Since short-term rates were well below long-term rates, many people borrowed at adjustable rates, believing that rates would stay low indefinitely, or that housing prices would continue to rise indefinitely, thus enabling them to refinance at a fixed rate at some future date.

Needless to say, home prices rose even faster than before, as these lower rates (along with new types of loans and creative sales tactics) increased the effective demand for housing faster than supply.

Rising rates reduced the demand for housing, causing prices in some areas to top out and start falling. Readers of this column were informed that the party was over and that some homeowners would soon have difficulty paying off their loans.

Others missed this sign until it was too late. Now they are trying to shut the barn door after the horse has escaped.

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

Schopenhauer would be proud!