Living through economic “bubbles”

Andrew Zook, a BC alum, talked to students about his experience in the "Dot-Com" bubble and the housing bubble.  Photo by Pixabay, Pexels.

By Mary Elsen, The Circuit.

Benedictine College welcomed back one of its own, Andrew Zook, class of 1985, to share his experience shifting from sales and marketing to real estate in his presentation “My Life in Bubbles” on Sunday, Feb. 26.

By sharing his knowledge and experience, Zook offered attendees a glimpse into the highs and lows of economic bubbles and what to watch out for while in one.

“[I] spent about 15 years in the software business and then from that, I moved into the real estate business and I founded a mortgage company,” Zook said.  “In those two particular careers, I happened to be really at the epicenter of a boom and a bust…the biggest bubbles in the last 25 years.”

According to Investopedia.com, “A bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction…When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.”

In other words, assets are overvalued for a time, forming a bubble, which “bursts” when valuations drop.

Zook listed several lessons and signs to look for in economic bubbles.

His lessons for students included: that business cycles are normal and healthy; the “booms” and “busts” seem to be more severe now than in the past; be prepared for the ups and downs of the bubbles; and lastly, know that “busts” happen very quickly.

In 2005, after experiencing bubble bursts in the online business, Zook made a career change as he went into real estate.

Here Zook touched on two different housing bubbles he lived in.

Zook said the first bubble (2003-2006) was caused by a lowering in credit standards, which led to loans being more accessible.  The second bubble (2009-present) is fueled by a lowering in interest rates, he said.

“Statistically, just because you can qualify [for a loan for a home], you’ve got to demonstrate a financial and emotional maturity to own a home,” Zook said.  “You’ve got to have stability in your income and job.”

Kyle Vonnahme, senior economics major, expanded on how the housing bubble of 2003-2006 developed and led to the collapse in 2008.

“A lot of [the housing bubble] resulted from basically irresponsible business practices,” Vonnahme said.

“People lost a lot of money because their houses lost value and loans were turned into giant financial securities that were then sold [to investors], so that when the loans fell through the securities had nothing backing them,” Vonnahme said.

When Vonnahme came to Benedictine, the country was just starting to rebound after the recession.

“[Zook’s presentation] was interesting as an economics major because [economic bubbles] are things we talk about,” Vonnahme said. “It was interesting to hear someone who was in [the rise and fall of the housing bubble].”

Zook’s closing advice for students was something his first boss told him.

“Build your lifestyle on 75 percent of [your income] and you will always be happy and you won’t have financial stress.”