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Why Even Smart Money Was Convinced the Housing Market Would Never Crash

In this segment from Motley Fool Answers, the cast talks about a few "that will never happen" moments in the world of economics and finance that -- surprise! -- actually happened. First up is the decade-old housing bubble that derailed the entire U.S. economy. Even as luminaries like Ben Bernanke insisted a housing crash was out of the question, what can we learn from this experience?

A transcript follows the video.

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This podcast was recorded on Nov. 1, 2016.

Alison Southwick: No. 1, they said the housing market would never crash. I mean, come on. It's housing. It's so stable.

Jim Royal: It always goes up, I heard.

Robert Brokamp: Right. Well, most famously, Ben Bernanke, back when he was an economic advisor to President Bush [and] before he was chair of the Fed, pointed out we've never had a nationwide crash in housing prices. So, why would we ever expect it to happen? He said basically he didn't think that it was a bubble, and that it would do much to the economy. Of course, he was wrong. Smart guy. I'm not trying to pick on him individually. His point was, it never happened in the past, so why should we expect it to happen in the future? But, of course, it did. Housing prices nationally crashed around 30% ...

Royal: Right.

Brokamp: ... and we're still not back to where we were. Getting close -- within 5% or so where we were in 2006 -- but we're still not there. So, housing prices are still down from their peak.

Royal: I was just going to talk about no night games at Wrigley until 1988, and then boom, night games. They said it would never happen.

Brokamp: Is this a baseball thing?

Royal: Yeah, it is.

Brokamp: OK.

Southwick: That's good. Bring in the baseball.

Brokamp: Blame baseball for everything.

Royal: It will rear its ugly head, again.

Southwick: Do they just not want to buy the lights? Is that ...

Royal: I'm not entirely sure of the background of that, but ...

Alison: The inner workings ...

Brokamp: Chicago finally got electricity.

Royal: Yeah, yeah.

Brokamp: Actually, I was born in Chicago. They have electricity. Another interesting thing about the history of the housing market is Mark Hulbert, in an article for Barron's a year ago, pointed out that in all of the stock bear markets since 1956, housing actually went up in value in 14 of those 16. One of those times when housing dropped, it only dropped like 0.4%. The other time it dropped was the recent time.

There's another example. Up until 2006, housing actually was just as good a diversifier to your overall portfolio as bonds, but then came 2006 even until now. Once again, showing just because something happened in the past doesn't mean it's going to happen in the future.

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