It is a well-known fact that if one doesn’t learn the lessons of history, one is doomed to repeat those lessons. The economic events of the last decade have had a profound impact on our community, not only in the pure destruction of wealth, but in how we view ourselves and how others view us.

Here we are in July 2014, at the height of tourist season on Hilton Head Island, and I thought that this might be an appropriate time to take a look back on the economic calendar.

In the early 2000s, demographic changes should have signaled that we were headed into a period of economic volatility. Baby boomers, those born between 1946 and 1964, were coming into their peak earning years, their children were leaving home and they were in the final throes of preparing for retirement, in a financial sense.

You will learn from history that these Americans, who were born during the greatest and longest period of economic expansion in United States history, caused economic dislocation from the beginning.

First it was the need for new schools in the 1950s, then the social revolution of the 1960s, the rush into colleges in the 1970s and the huge economic expansion of the 1980s and 1990s.

So what was to come next and how is the asset bubble that we created going to impact us right here on Hilton Head Island in the years ahead?

Baby boomers, with a renewed sense of freedom and money to invest, went on their next binge. It was borne of two commonly held theories: first, that real estate values always increase, and second, that excess yield on investments comes with excess risk.

We were in prime territory for the creation of an “economic bubble.” Economic bubbles are generally defined as “when assets trade in high volumes at prices that are considerably at variance with intrinsic values.”

Bubbles reach back in history with the first assets bubble being the British South Seas bubble between 1711 and 1720. More recent asset bubbles include the Dutch tulip mania, the roaring ‘20s stock market bubble resulting in the Great Depression, the Hunt Brothers’ silver bubble of 1980 and the housing bubble of 2008, resulting in the Great Recession.

Asset bubbles have one very significant thing in common: They require a herding mentality and leverage. With the boomers’ reach for yield on their liquid assets, the table was set for a bubble to be formed. And what better place was there than Hilton Head Island, along with the other “sand states” like Florida, Arizona, Nevada and California, to “invest” in real estate?

The net result was that through a combination of excessive demand, a limited supply and lenders willingness to lend with no regard to ability or willingness to repay the debt, we were off to the races.

Lenders, mostly the larger mortgage banks and investment banks, believed the same as real estate investors: that real estate prices always go up and, as such, they would be bailed out of their credit mistakes with appreciated collateral.

So what does this all mean to us and what can we expect going forward? Many of us, including myself, came here and bought our homes around 2004 when the average home prices on Hilton Head Island, according to Zillow, was $325,000.

Over the next several years, home prices increased to a peak of $512,000 in 2007, a 58% increase at its peak. When the bubble burst in 2008, home prices dropped to a low of $323,000 in 2011 and now ticked up to an average of $342,000 currently.

Finally we are on the slow road back! While we are now about back to where we started, we feel as though we have lost wealth and our lives are changed forever.

Let me suggest to all that what we are now experiencing is a normal economy and not the “new normal” as described by Bill Gross of PIMCO. We have been through a period of correction and that is a normal part of economic cycles.

We are all fortunate to live in a beautiful place with exceptional amenities and a bright future. Let’s put the past behind us without forgetting its lessons.

Let’s welcome our many visitors and embrace living in this paradise we call home!

Elihu Spencer is a local amateur economist with a long business history in global finance. His life work has been centered on understanding credit cycles and their impact on local economies. The information contained in this article has been obtained from sources considered reliable but the accuracy cannot be guaranteed.