Interesting qustions about bubbles.

The housing crash was a very long con that began when Nixon took us off the gold standard in 1971. Then when you combined 80 million baby boomers with a Fed that was out of control, the result was an inflationary hockey stick spike that began in the 70s and lasted through the '90s. Then just as the market was starting to self correct in 2002, Greenspan panicked and flooded the market with money. By 2006, people were buying homes with absolutely nothing down, i.e., they were upside down the second they signed the closing papers.

Bottom line? It has been five years, and it may take another five to ten years before housing recovers.

Unintended consequences. If you want to know more read David Stockman's new book, but be warned, it is very depressing.

The only connection that I'm aware of is neither are predictable.

Dale

 

One of the things that really heated up the housing bubble was the Community Reinvestment Act (the CRA).

Originally passed in 1977 during the Jimmy Carter administration, it was full of "good intentions".
During the mid-1990's, its effects were greatly amplified by the regulatory changes to it made during the Bill Clinton administration.

Learn more about the CRA and its evolution over time here:
Community Reinvestment Act - Wikipedia, the free encyclopedia

This is where the notion of "no docs" loans came from and the forcing of lending institutions to make home loans to people who otherwise would never qualify.

The end result of this "do good" law? A massive housing bubble due to the dramatically increased supply of potential home buyers, all wanting to get a piece of the get-rich-by-owning-a-home action, who later defaulted on making their mortgage payments.

A housing bubble would have happened anyway without the ramped-up CRA, but it caused a much bigger housing bubble to happen and much bigger financial hole to dig ourselves out of when that bubble collapsed.
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IMO the housing crash and tulip mania had something in common in that (at the end of) the housing bubble the price of homes in very hot areas has little to nothing to do with the actual cost of materials and labor required to replicate it.

"It is worth what someone is willing to pay" is one of the common meme that was often repeated in 2006, and probably also in Holland a few centuries ago. In truth, it should probably be "it is worth what it costs to replicate it, but for several reasons people are willing to spend much more than that to acquire it".

When this disconnect between actual costs and selling price widened, you saw many destructive consequences. People that had no business "investing" (gambling) in real estate saw it as a no-lose proposition. When maids and hairdressers were buying rental properties on 0% down and reverse-equity mortgages in the assumption they would flip them in a few months and make $50,000, the game was up. What it was in reality was a nationwide game of musical chairs, except none knew when all of the chairs would be removed from a particular area. The less savvy investors (and very greedy) were the ones left without a chair. All deservedly were cleaned out.

The US was just the first to see the housing bubble pop. Others are still to happen. China, Australia, parts of Canada have all seen the price of RE go through crazy. All will eventually crash and burn.

 

In another world this would be called "fraud".

Were the lending institutions compelled to give loans to applicants, or was it because the other bank was raking in fees by facilitating RE transactions that the executives of an otherwise responsible bank were forced to do the same to keep their jobs?

Interestingly the commercial banking sector appeared to be more responsible and required larger down payments and shorter terms for applicants with actual qualifications. This segment faired much better with a lower loan failure rate regardless of region of the country.

 

Yes. It was considered "discrimination" by the banks if they didn't make subprime loans.

Here are some quotes from wikipedia article on that topic:

"Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks."
In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.
A recent study by Agarwal, Benmelech, Bergman, and Seru published as a NBER working paper found that, over the period 1999-2009, necessity to conform to the Community Reinvestment Act led to riskier lending by banks"

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Back to the OP's question. The dot.com bubble was closer to a true tulip bubble than housing.

Dale

PS A current example MAY be gold. This is what makes bubbles so hard to see while they are happening.

 

Diamonds are a well sustained bubble only because of a monopoly and killer marketing.
Damn things are just next to worthless in reality but worth a fortune in perception.
If this bubble ever pops I'm going to cry like a baby.

 

Gold has a centuries old record of storing wealth.
Not really a bubble commodity like tulip bulbs.

I have the remnants of a victim of the Ferrari bubble in my garage waiting restoration.
The previous owner was left holding the bag when it popped and his solution was an insurance fire.