Real-estate markets are almost as volatile as stock markets. Prices of agricultural land, of commercial real estate, and of homes and condominiums have gone through a series of huge bubbles, as if people never learned from the previous ones. Such events--in particular the recent housing bubble--are driven by what John Maynard Keynes called animal spirits, a naive optimism at the intersection of overconfidence, corruption, storytelling, and money illusion (another Keynesian term, for views warped by currency's nominal value instead of its purchasing value). It appears that people had acquired a strong intuitive feeling that home prices everywhere can only go up. They seemed really sure of this, so much so that they were ready to dismiss any economist who said otherwise. The impression that homes are spectacular investments probably stemmed, in part, from money illusion. There is no rational reason to expect real estate to be a generally good investment. It is so only at certain times and in certain places. But the myth can be amplified by a number of factors, and in this most recent boom, it was. The housing market touched on all aspects of the animal spirits identified by Keynes--confidence, fairness, corruption, storytelling, and money illusion. It's clear, in this market and many others, that those animal spirits help drive the economy and that, to steer it safely, economists and policy makers will have to study such behaviors further and take careful account of them in devising new incentives and reforms.