I hate to pat myself on the back, but I feel the need for some self-encouragement every once in a while. A little less than a year ago I wrote in this space that boom-bust cycles were common phenomena, and that the current housing cycle was mirroring the tech boom-bust cycle of the late 1990s. Not coincidentally, near everyone at the time was telling me that real-estate investments were a no-lose proposition — a big alarm bell in my ears. When the barber starts advising you on where to invest, it’s time to get out.

Today, the sub-prime mortgage market is imploding, which is not unlike how margin investors got bagged in the equity-market meltdown of six or so years back. Once again, the marginal “know-it-alls” are taking a bath in their speculative excesses. I’m not here to gloat. Rather, I’d like re-emphasize that the current housing “crisis” is part of a classic boom-bust bubble story. But first some spring cleaning: Why won’t the cable news programs bring back the indefatigable real-estate bulls of a year ago, those rosy prognosticators who predicted nothing but blue skies ahead for housing? These folks have some explaining to do. What went wrong? Why were they so wrong? And the usual TV gadflies aren’t helping matters much. Over the past week they’ve been telling us that the so-called “other shoe” dropped when the market tumbled on slow mortgage payments. But this rationale is off the mark. The game in real-estate is over when prices plunge, and not until then. Here’s a true story that might help clear the media-induced housing haze. And while the story gets off to a queasy start, there is a happy ending — at least for those who look long with their investments and tend to steer clear of the marginal madness. A friend of mine entered the ebullient real-estate market in Southern California in 1989, plunking down $869,000 for an upscale home in Agoura Hills, a bedroom community outside Los Angeles. By 1992 — following the meltdowns of the savings-and-loan industry and the high-yield bond market — my friend sold his home for $721,000: a 17 percent loss before real-estate commissions of 6 percent. Twenty-four other home owners in his development had similar stories to tell. My friend was depressed to say the least, although a measure of comfort could be found in some continued bad news. When the next selling season came around in the development, an even more-attractive home than my friend owned listed for $100,000 less than the sale price of his house. And the news out of Santa Barbara — one of the really nice places to live in the U.S. — suggested that he escaped with only a scrape. A second-row beachfront condo that listed new for $989,000 in 1989 was on the market in 1992 for a mere $412,000 — a price decline of more than 58 percent. I am not forecasting declines of this magnitude for residential real estate in 2007. But the California experience shouldn’t be ignored, at least by the optimists: I consulted Zillow, the web-based house-price estimator, to find out what happened to that $412,000 condo in Santa Barbara. Some fifteen years later, the estimated price is a cool $3,000,000! The moral of the story is that prices — whether stock prices or house prices — can fluctuate. Short-term euphoria and rising prices inevitably lead to short-term dyspepsia when houses don’t sell, banks become big holders of residential real estate, and prices finally plunge to equilibrate supply and demand.