What Happens After the Bubble

Real estate prices have fallen across the Unitedmajor financial development. H&R Block, the famous
States, and most rapidly in the location that were thetax accountant firm, took a loss of about $135 million
parts of the real estate bubble going up the mostmostly from losses in their mortgage subsidiary.
rapidly in the last five years, such as Florida, Arizona,Option One Mortgage, and its sub-prime unit have
and the Boston, Mass. area. Still, some areas must bebeen taking a big hit.
better opportunities for new buyers. After all theOf course, if you just look at this from the
question remains, has the bubble gone down farstandpoint of the real estate market, it doesn't seem
enough, or does it still have a lot more to go. In anythat big a deal. Instead of panicking, there will just be
case, you have to live someplace, so you may bereal estate brokers who go heavier into the
likely to buy a house or apartment somewhereforeclosure and distressed home market. It will seem
anyway. If you live in some areas, like much ofto be a novelty to them to sell distressed homes, to
upstate New York, there may never have beentry to buy them at the lowest prices and resell them
much of a real estate bubble to worry about in anyquickly at higher prices. Over the last five years, the
case.foreclosure rate on homes was very low, because if
On the other hand, on the Jersey Shore, and ina homeowner fell behind in their mortgage, they
suburban New Jersey's Bergen and Passaic County,could either refinance the home at a higher price than
near New York City, a real estate bubble hasthey paid and get some quick cash out, or sell the
definitely been built. For example, on the Jerseyhome quickly at a higher price than their mortgage,
Shore (New Jersey), not far from New York City,but not anymore.
the foreclosure rate on homes is climbing in someIf you look at reports of the involvement of the
fairly ritzy neighborhoods. The foreclosure rate hasentire U.S. banking system in the financial bubble you
doubled both there, and in nearby Bergen and Passaicget a different story. Since the average bank has
counties.about 50 percent of its equity tied up home and
Some sub-prime mortgage lenders sound weak andcommercial mortgages. A big hole in this equity could
some are actually closing up shop. This is becoming areally start the financial system going down.