June 2011: Wrong Expectations Regarding Housing

It is not a secret that Puerto Rico has experienced economic troubles since the past decade. The construction sector is one of the most beaten, with investments at a standstill, job losses, and few housing sales. A housing bubble is one of the causes and is part of the current recession. This current issue examines the formation of wrong expectations in the PR housing market without relying on real housing demand determinants. We discuss how these expectations caused a housing boom from 2003 to 2006 when housing prices and sales escalated rapidly. When the bubble burst, banks and developers were beaten and government has strived to solve the problem but not quickly enough. As always, it is the taxpayer who ends up paying for the excesses of others.