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The word bubble has been used over and over in describing real estate market conditions going suddenly backwards. The Austin real estate market was on fire in 1999 and 2000. Then the tech "bubble" burst and prices dropped, inventory increased and people were almost in a state of panic. Did a bubble burst or was it actually a balloon deflating?
Mirriam-Webster's online dictionary defines bubble as “a thin film of liquid inflated with air or gas.” It also defines bubble as “a state of booming economic activity (as in a stock market) that often ends in a sudden collapse.” It defines balloon as “a nonporous bag of light material that can be inflated especially with air or gas. “
Think of an ordinary balloon, like the one you put on open house signs. If you fill it to about half capacity and leave it in your car on a warm, sunny day, what happens? It expands. If you take that same balloon and put it in a refrigerator it will deflate. But unless you poke a hole in it, it won’t burst. (I know, I know – a balloon like this can’t remain intact forever, but stay with me here)
Back to Austin in 1999 and 2000... The Austin economy was heating up in the late 90s, just like the inside of our car on the sunny day. New businesses started up, others expanded and the Austin area became a popular destination for tech job seekers. As job growth was really hot, so was the Austin real estate market. Buyers seemed to be everywhere and they had money. Builders couldn't put specs up fast enough. Prices went through the roof. In other words, prices inflated just like the balloon did in the hot conditions.
Then the high tech bubble burst. In many ways it really was like a bubble. It got bigger and bigger, but was very fragile. Speculators drove tech stock prices through the roof, investing millions and millions of dollars into companies without proven histories. When the bubble burst, millions of dollars seemed to just vanish. People holding shares in PCorder.com, Vignette and other tech companies suddenly had nothing. This really was like a bubble bursting.
As Austin’s economy suffered, so did the real estate market. Austin actually experienced its first net population loss in ages. Spec homes were sitting and sitting. Many people were upside-down in their mortgages. The result was a big price decrease across the 5 county area and there were many foreclosures.
Did a bubble burst? Not in my opinion. A bubble bursting implies that the thin film of liquid had a structural failure and the gas within dissipates. The liquid and gas disperses and seems to vanish. Our real estate market didn’t go anywhere, it remained intact, much like a balloon. If you look at prices, which decreased, it was much like a balloon contracting.
Fast forward to 2006. We have recovered from the downturn in 2001. Job growth is once again healthy. Growth seems to be everywhere. Inventory is down compared to several years ago and prices once again are up. The Austin real estate balloon is expanding.
So has just about everyone out there been using an incorrect term when referring to the real estate bubble? You be the judge. Personally, I’m happy to be in a balloon.
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