It's all happened before...

It's truly amazing to me to see how many people ignored (or didn't recognize) the patterns in the housing market. Even analysts seem to sway back and forth as to whether we we're in a housing bubble; a type of economic bubble that is characterized by rapid increases in valuations of real property, such as housing, until they reach unsustainable levels relative to incomes and other economic elements.

I recognized the bubble early on, and took steps to profit from it, while watching carefully so as not to end up upside down. I warned friends and family about the impending danger. Unfortunately, most believed that the market was going to continue to climb indefinitely.

Click image below to enlarge.
Interestingly, the current Mortgage Crisis is not much different from the collapse of the Housing Bubble of the 1980's. The timeline below details the boom, collapse, and recovery of the last housing bubble, as well as the boom and decline of the current bubble. (NOTE: This article focuses mostly on the impact of the bubble on Southern California. Most of the headings are the titles of news articles from the So-Cal Metro within the corresponding time period.)

1985-1986	Housing is booming, inventory is low. Housing starts surge 14.9% during January, best gain in 20 months. Inventory of housing dips in Southland, unsold new homes declined by 3.2% from end of l984.
1987	Housing still booming, prices increasing, inventories low. High-end home sales push up the median price. California June Housing Starts Up 12.5%.
1988	People start to question the boom. Realtors assure us the boom will continue. Houses aren't like stocks afterall.
1989	Prices are very expensive; affordability an issue. Sales slow and prices drop. Mention of risky loan types.
1990	Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word "recession" is mentioned. Doom and gloom.
1991	A "dead cat bounce"? Some folks wondering if the bust has bottomed out or not. Sales are abysmal (e.g., -42%). Other parts of the country showing some signs of recovery.
1992	No one is buying; housing is an investment that no one will touch. Desperate political efforts being made to encourage house buying. Rock bottom prices and lower mortgage rates encourage some purchasing. The year ends with some buying. Another "dead cat bounce"? It's not clear.
1993	It's definitely a buyer's market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980's. The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large. Sellers are desperate to sell (and some people taking extreme measures like putting huge "for sale" signs on their lawns for passing planes to see). Folks who waited out the boom to buy at the bottom are being handsomely rewarded for their patience. Proof-positive of the contrarian investing style -- be greedy when everyone is fearful and fearful when everyone is greedy. The "slump" may be ending.
1994	Housing begins its comeback. Home Sales Up 24% From Last Year (June). Lenders scramble to keep housing comeback alive. People who had the intelligence to wait for the bottom are buying now at great values. Even rising mortgage rates are not shaking the recovery.
1995	Some parts of the Southland are recovering others are not. Home Sales Rise 10.5% in State, Hit 5-Year High in Feb. County Home Sales Slide 20.4% in May. People with "negative equity" are in despair. Study of Homeowners Finds `Negative Equity' a Problem.  Real estate: Nearly 5% owe more than homes are worth. Impact hinders the state's economy, experts say.
1996	A tentative recovery is still in the making. Ready to fly? Region's housing prices on rise, moderately. State's housing market finally in turnaround. O.C. homeowners more confident.
1997	Finally, housing has recovered. Southland Home Sales Are Unseasonably Hot Real estate: In O.C., October sales were 46.5% higher than last year. Median price of $208,000 was highest since 1994.
2001	Home Is Where the Market Stability Is; Housing: Aging baby boomers, immigrants, limited supply--and even the stock market--are fueling the buying trend.
2002-2003	Mortgage denial rate of 14% for conventional home purchase loans, half of 1997. Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states.
2004	Housing Market To Remain Economic Cornerstone. U.S. home-ownership rate peaked with an all time high of 69.2%.
2005	Overheated housing market is cooling. Median prices declined 5.7% in September, one sign that housing is cooling.
2006	Continued market slowdown. Prices are flat, home sales fall, resulting in inventory buildup. U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
2007	California housing: still unaffordable. Year-over-year decreases. Home sales and home prices accelerates [downward] rather than bottoming out, with U.S. Treasury Secretary Paulson stated "the housing decline ... the most significant risk to our economy."
2008	California freefall. Home prices down 26% in February. Southern California home sales drop to a 20-year low. Ex-Fed Chairman Greenspan admits recession. Doom and gloom.

Most would agree the market bottomed sometime in 1993, during the collapse of the bubble in the 1990's;  however, even in 1994 or 1995 prices hadn't moved much.  That being said, don't overly concern yourself about buying at the absolute bottom.  So where are we in the cycle? Are we where we were in 1990, 1991, or 1992? The truth is, no one knows exactly. The best one can do is be prepared financially for what may come.

Conclusion

At this point, it should be abundantly clear that the current housing crisis looks more than suspiciously similar to what happened almost two decades ago. You may have also noticed that once the market did collapse, there was a lasting impact on housing prices. I believe history will repeat itself here, albeit on perhaps a much larger scale.

Yet, If you managed to identify the signs and profited from the bubble, then you're in a very good place, congratulations. However, if you didn't, don't beat yourself up about it. Instead, learn from this experience, so that you don't make the same mistakes in the future. Start to prepare yourself for the next cycle. 

Remember, it's all happened before, and it will happen again!

The sources for this article are here and here.