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The psychological impact of paper gains and losses is very important. People with large paper gains are likely to feel richer and to spend more money, while those with paper losses feel poorer and are more cautious. If people feel that the prices will keep falling they will become very cautious. Banks will stop lending to average customers, which is happening in 2008.
The psychological impact of paper gains and losses is very important. People with large paper gains are likely to feel richer and to spend more money, while those with paper losses feel poorer and are more cautious. If people feel that the prices will keep falling they will become very cautious. Banks will stop lending to average customers, which is happening in 2008.
Very large paper gains came in the American [[housing bubble|real-estate bubble]] in 2001-2007. An ordinary 3 bedroom house in California that sold for $200,000 in 2001 might sell for $500,000 in 2007, and then dropped to $350,000 in 2008. Many people bought houses on speculation--they did not plan to live in them but planned to sell them and keep the profits. This speculation accelerated the rise in housing price, and accelerated the plunge after the bubble burst.
Very large paper gains came in the American [[housing bubble|real-estate bubble]] in 2001-2007. An ordinary 3 bedroom house in California that sold for $200,000 in 2001 might sell for $500,000 in 2007, and then dropped to $350,000 in 2008. Many people bought houses on speculation—they did not plan to live in them but planned to sell them and keep the profits. This speculation accelerated the rise in housing price, and accelerated the plunge after the bubble burst.
[[Category:Finance]]
[[Category:Finance]]