Greg, asked me a question. Why do I think that South Boston condo prices per sq. ft. have gone down in the last several years?

My answer may come across simplistic. But here it is. I think the reason prices per sq. ft. are coming down in South Boston is because South Boston was is in a classic “housing bubble.” The speculation of developers, housing prices, were just unsustainable compared to average wages of buyers for that area.

I guess the next question would be, what caused the housing bubble. According to Wharton finance professor Richard Herring “Bubbles occur when people are willing to buy something simply because they believe they can sell it for a higher price. {Bubbles} Often have an aspect of mania”

Housing booms and busts are “almost always linked to the banking system,” he added. “When something good happens in an economy, it tends to drive up real estate prices, and banks tend to lend to support that, because people now have collateral.”

Optimism about rising prices feeds the frenzy, and as an increasing number of novice investors enter the market, prices and enthusiasm also increase.

“You get into this upward spiral that can take you a very long way for a very long time. You may ask where the supervisors and regulators are in all of this, and often, they tend to support it. They really like to see loans that are collateralized by real estate because it’s tangible.”

Read more about housing bubbles