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February 08, 2007
There was a bubble in dirt as well...
So much ink has been spilled over the bubble in housing, but it's now apparent that there was similar speculation in the raw land upon which developers built all those new houses. In some parts of Florida, land prices have collapsed 50% and yet buyers aren't stepping up because they expect prices to plunge another 30%. In many cases, builders who took out options on parcels of land have chosen to walk away and swallow the losses on the option. Bloomberg has a good take on the situation, although one question is doesn't answer is what effect the plunging land values could have on small, local banks, which are the institutions that I believe often make the loans for small builders to buy land. If those small builders lose their shirt on plunging land values, that could spell trouble. Read on...
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