Causes of the 2000s United States housing bubble
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Observers and analysts have attributed the reasons for the 2001–2006
According to a 2018 review of existing evidence, "inflated house-price expectations across the economy played a central role in driving both the demand for and the supply of mortgage credit before the crisis".[7] The review concluded that the crisis was not driven by reckless lending by lower classes, but rather greater mortgage lending across all income groups.[7]
Government policies
Housing tax policy
In July 1978, Section 121 allowed for a $100,000 (~$366,737 in 2023) one-time exclusion in capital gains for sellers 55 years or older at the time of sale.[8] In 1981, the Section 121 exclusion was increased from $100,000 to $125,000.[8] The Tax Reform Act of 1986 eliminated the tax deduction for interest paid on credit cards. As mortgage interest remained deductible, this encouraged the use of home equity through refinancing, second mortgages, and home equity lines of credit (HELOC) by consumers.[9]
The Taxpayer Relief Act of 1997 repealed the Section 121 exclusion and section 1034 rollover rules, and replaced them with a $500,000 married/$250,000 single exclusion of capital gains on the sale of a home, available once every two years.[10] This made housing the only investment which escaped capital gains. These tax laws encouraged people to buy expensive, fully mortgaged homes, as well as invest in second homes and investment properties, as opposed to investing in stocks, bonds, or other assets.[11][12][13]
Deregulation
Historically, the financial sector was heavily regulated by the
Starting in the 1980s, considerable deregulation took place in banking. Banks were deregulated through:
- The Depository Institutions Deregulation and Monetary Control Act of 1980 (allowing similar banks to merge and set any interest rate).
- The Adjustable-rate mortgages).
- The Gramm–Leach–Bliley Act of 1999 (allowing commercial and investment banks to merge).
Several authors single out the banking deregulation by the Gramm–Leach–Bliley Act as significant.
Economists
However, many economists, analysts and politicians reject the criticisms of the GLB legislation. Brad DeLong, a former advisor to President Clinton and economist at the University of California, Berkeley and Tyler Cowen of George Mason University have both argued that the Gramm-Leach-Bliley Act softened the impact of the crisis by allowing for mergers and acquisitions of collapsing banks as the crisis unfolded in late 2008.[3] "Alice M. Rivlin, who served as a deputy director of the Office of Management and Budget under Bill Clinton, said that GLB was a necessary piece of legislation because the separation of investment and commercial banking 'wasn't working very well.' Even Bill Clinton stated (in 2008): 'I don't see that signing that bill had anything to do with the current crisis'".[22]
Mandated loans
Republican Senator
The Housing and Urban Development Act of 1992 established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie's and Freddie's loan purchases be related to affordable housing. However, HUD was given the power to set future requirements. In 1995 HUD mandated that 40 percent of Fannie's and Freddie's loan purchases would have to support affordable housing. In 1996, HUD directed Freddie and Fannie to provide at least 42% of their mortgage financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005. Under the Bush Administration HUD continued to pressure Fannie and Freddie to increase affordable housing purchases – to as high as 56 percent by the year 2008.[25] To satisfy these mandates, Fannie and Freddie eventually announced low-income and minority loan commitments totalling $5 (~$6.95 trillion in 2023) trillion.[26] Critics argue that, to meet these commitments, Fannie and Freddie promoted a loosening of lending standards - industry-wide.[27]
Regarding the Community Reinvestment Act (CRA), economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charged the Federal Reserve with ignoring the negative impact of the CRA.[28] American Enterprise Institute Scholar Edward Pinto noted that, in 2008, Bank of America reported that its CRA portfolio, which constituted only 7 percent of its owned residential mortgages, was responsible for 29 percent of its losses.[29] A Cleveland Plain Dealer investigation found that "The City of Cleveland has aggravated its vexing foreclosure problems and has lost millions in tax dollars by helping people buy homes they could not afford." The newspaper added that these problem mortgages "typically came from local banks fulfilling federal requirements to lend money in poorer neighbourhoods".[30][31]
Others argue that "pretty much all the evidence on the housing crisis shows" that Fannie Mae, Freddie Mac, the (CRA) and their affordability goals were not a major reason for the bubble and crash.[21][23][32]
Law professor David Min argues that view (blaming GSE's and CRA) "is clearly contradicted by the facts", namely that
- Parallel bubble-bust cycles occurred outside of the residential housing markets (for example, in commercial real estate and consumer credit).
- Parallel financial crises struck other countries, which did not have analogous affordable housing policies
- The U.S. government's market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s.[33]
However, according to Peter J. Wallison, other developed countries with "large bubbles during the 1997–2007 period" had "far lower ... losses associated with mortgage delinquencies and defaults" because (according to Wallison), these countries' bubbles were not supported by a huge number of government mandated substandard loans – generally with low or no downpayments" as was the case in the US.[34]
Other analysis calls into question the validity of comparing the residential loan crisis to the commercial loan crisis. After researching the default of commercial loans during the financial crisis, Xudong An and Anthony B. Sanders reported (in December 2010): "We find limited evidence that substantial deterioration in CMBS [commercial mortgage-backed securities] loan underwriting occurred prior to the crisis."[35] Other analysts support the contention that the crisis in commercial real estate and related lending took place after the crisis in residential real estate. Business journalist Kimberly Amadeo reports: "The first signs of decline in residential real estate occurred in 2006. Three years later, commercial real estate started feeling the effects.[36] Denice A. Gierach, a real estate attorney and CPA, wrote:
most of the commercial real estate loans were good loans destroyed by a really bad economy. In other words, the borrowers did not cause the loans to go bad, it was the economy.[37]
In their book on the financial crisis Business journalists Bethany McLean and Joe Nocera argue that the charges against Fannie and Freddie are "completely upside down; Fannie and Freddie raced to get into subprime mortgages because they feared being left behind by their nongovernment competitors."[38]
Most early estimates showed that the subprime mortgage boom and the subsequent crash were very much concentrated in the private market, not the public market of Fannie Mae and Freddie Mac.[23] According to an estimate made by the Federal Reserve in 2008, more than 84 percent of the subprime mortgages came from private lending institutions in 2006.[32] The share of subprime loans insured by Fannie Mae and Freddie Mac also decreased as the bubble got bigger (from a high of insuring 48 percent to insuring 24 percent of all subprime loans in 2006).[32]
To make its estimate, the Federal Reserve did not directly analyze the characteristics of the loans (such as downpayment sizes); rather, it assumed that loans carrying interest rates 3% or more higher than normal rates were subprime and loans with lower interest rates were prime. Critics dispute the Federal Reserve's use of interest rates to distinguish prime from subprime loans. They say that subprime loan estimates based on use of the high-interest-rate proxy are distorted because government programs generally promote low-interest rate loans – even when the loans are to borrowers who are clearly subprime.[39]
According to Min, while Fannie and Freddie did buy high-risk mortgage-backed securities,
they did not buy enough of them to be blamed for the mortgage crisis. Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office,[40] the Harvard Joint Center for Housing Studies,[41] the Financial Crisis Inquiry Commission majority,[42] the Federal Housing Finance Agency,[43] and virtually all academics, including the University of North Carolina,[44] Glaeser et al. at Harvard,[45] and the St. Louis Federal Reserve,[46] have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[33]
Min's contention that Fannie and Freddie did not buy a significant amount of high-risk mortgage backed securities must be evaluated in light of subsequent SEC security fraud charges brought against executives of Fannie Mae and Freddie Mac in December 2011. Significantly, the SEC alleged (and still maintains) that Fannie Mae and Freddie Mac reported as subprime and substandard less than 10 percent of their actual subprime and substandard loans.[47] In other words, the substandard loans held in the GSE portfolios may have been 10 times greater than originally reported. According to Peter Wallison of the American Enterprise Institute, that would make the SEC's estimate of GSE substandard loans about $2 trillion - significantly higher than Edward Pinto's estimate.[48][49]
The Federal Reserve also estimated that only six percent of higher-priced loans were extended by Community Reinvestment Act-covered lenders to lower-income borrowers or CRA neighborhoods.[23][50][51] (As it did with respect to GSE loans, the Federal Reserve assumed that all CRA loans were prime unless they carried interest rates 3% or more above the normal rate, an assumption disputed by others.)[39] In a 2008 speech, Federal Reserve Governor Randall Kroszner, argued that the CRA could not be responsible for the subprime mortgage crisis, stating that
"first, only a small portion of subprime mortgage originations are related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together... we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis"
Others, such as
Nonetheless, economists at the National Bureau of Economic Research concluded that banks undergoing CRA-related regulatory exams took additional mortgage lending risk. The authors of a study entitled "Did the Community Reinvestment Act Lead to Risky Lending?" compared "the lending behavior of banks undergoing CRA exams within a given census tract in a given month (the treatment group) to the behavior of banks operating in the same census tract-month that did not face these exams (the control group). This comparison clearly indicates that adherence to the CRA led to riskier lending by banks." They concluded: "The evidence shows that around CRA examinations, when incentives to conform to CRA standards are particularly high, banks not only increase lending rates but also appear to originate loans that are markedly riskier." Loan delinquency averaged 15% higher in the treatment group than the control group one year after mortgage origination.[55]
Historically low interest rates
According to some, such as John B. Taylor and Thomas M. Hoenig, "excessive risk-taking and the housing boom" were brought on by the Federal Reserve holding "interest rates too low for too long".[56][57]
In the wake of the dot-com crash and the subsequent 2001–2002 recession the Federal Reserve dramatically lowered interest rates to historically low levels, from about 6.5% to just 1%. This spurred easy credit for banks to make loans. By 2006 the rates had moved up to 5.25% which lowered the demand and increased the monthly payments for adjustable rate mortgages. The resulting foreclosures increased supply, dropping housing prices further. Former Federal Reserve Board Chairman Alan Greenspan admitted that the housing bubble was "fundamentally engendered by the decline in real long-term interest rates".[58]
Mortgages had been bundled together and sold on Wall Street to investors and other countries looking for a higher return than the 1% offered by Federal Reserve. The percentage of risky mortgages was increased while rating companies claimed they were all top-rated. Instead of the limited regions suffering the housing drop, it was felt around the world. The Congressmen who had pushed to create subprime loans[59][60] now cited Wall Street and their rating companies for misleading these investors.[61][62]
In the United States, mortgage rates are typically set in relation to 10-year
Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission.[64]
For this reason, some have criticized then Fed Chairman Alan Greenspan for "engineering" the housing bubble,
A drop in mortgage interest rates reduces the cost of borrowing and should logically result in an increase in prices in a market where most people borrow money to purchase a home (for instance, in the United States), so that average payments remain constant. If one assumes that the housing market is
Return to higher rates
Between 2004 and 2006, the Fed raised interest rates 17 times, increasing them from 1% to 5.25%, before pausing.[76] The Fed paused raising interest rates because of its concern that an accelerating downturn in the housing market could undermine the overall economy, just as the crash of the dot-com bubble in 2000 contributed to the subsequent recession. New York University economist Nouriel Roubini opined that "The Fed should have tightened earlier to avoid a festering of the housing bubble early on."[77]
There was a great debate as to whether or not the Fed would lower rates in late 2007. The majority of economists expected the Fed to maintain the Fed funds rate at 5.25 percent through 2008;[78] however, on September 18, it lowered the rate to 4.75 percent.[79]
Differential relationship between interest rates and affordability. monthly payments
with respect to the interest rate r, then solving for the change in Principal. Using the approximation (K → ∞, and e = 2.718... is the base of the natural logarithm) for continuously compounded interest, this results in the approximate equation (fixed-rate loans). For interest-only mortgages, the change in principal yielding the same monthly payment is This calculation shows that a 1 percentage point change in interest rates would theoretically affect home prices by about 10% (given 2005 rates) on fixed-rate mortgages, and about 16% for interest-only mortgages. Robert Shiller does compare interest rates and overall U.S. home prices over the period 1890–2004 and concludes that interest rates do not explain historic trends for the country.[74]
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Regions affected
Home price
Despite greatly relaxed lending standards and low interest rates, many regions of the country saw very little growth during the "bubble period". Out of 20 largest metropolitan areas tracked by the
Somewhat paradoxically, as the housing bubble deflates[83] some metropolitan areas (such as Denver and Atlanta) have been experiencing high foreclosure rates, even though they did not see much house appreciation in the first place and therefore did not appear to be contributing to the national bubble. This was also true of some cities in the Rust Belt such as Detroit[84] and Cleveland,[85] where weak local economies had produced little house price appreciation early in the decade but still saw declining values and increased foreclosures in 2007. As of January 2009 California, Michigan, Ohio and Florida were the states with the highest foreclosure rates.
'Mania' for home ownership
Americans' love of their homes is widely known and acknowledged;[86] however, many believe that enthusiasm for home ownership is currently high even by American standards, calling the real estate market "frothy",[87] "speculative madness",[88] and a "mania".[89] Many observers have commented on this phenomenon[90][91][92]—as evidenced by the cover of the June 13, 2005 issue of Time magazine[86] (itself taken as a sign of the bubble's peak[93])—but as a 2007 article in Forbes warns, "to realize that America's mania for home-buying is out of all proportion to sober reality, one needs to look no further than the current subprime lending mess ... As interest rates—and mortgage payments—have started to climb, many of these new owners are having difficulty making ends meet ... Those borrowers are much worse off than before they bought."[94] The boom in housing has also created a boom in the real estate profession; for example, California has a record half-million real estate licencees—one for every 52 adults living in the state, up 57% in the last five years.[95]
The overall U.S. homeownership rate increased from 64 percent in 1994 (about where it was since 1980) to a peak in 2004 with an all-time high of 69.2 percent.[96] Bush's 2004 campaign slogan "the ownership society" indicates the strong preference and societal influence of Americans to own the homes they live in, as opposed to renting. However, in many parts of the United States, rent does not cover mortgage costs; the national median mortgage payment is $1,687 per month, nearly twice the median rent payment of $868 per month, although this ratio can vary significantly from market to market.[97]
Suspicious Activity Reports pertaining to mortgage fraud increased by 1,411 percent between 1997 and 2005. Both borrowers seeking to obtain homes they could not otherwise afford, and industry insiders seeking monetary gain, were implicated.[98]
Belief that housing is a good investment
Among Americans, home ownership is widely accepted as preferable to renting in many cases, especially when the ownership term is expected to be at least five years. This is partly because the fraction of a fixed-rate
However, housing prices can move both up and down in local markets, as evidenced by the relatively recent price history in locations such as New York, Los Angeles, Boston, Japan, Seoul, Sydney, and Hong Kong; large trends of up and down price fluctuations can be seen in many U.S. cities (see graph). Since 2005, the year-over-year median sale prices (inflation-adjusted) of single family homes in Massachusetts fell over 10% in 2006.[citation needed] Economist David Lereah formerly of the National Association of Realtors (NAR) said in August 2006 that "he expects home prices to come down 5% nationally, more in some markets, less in others."[102] Commenting in August 2005 on the perceived low risk of housing as an investment vehicle, Alan Greenspan said, "history has not dealt kindly with the aftermath of protracted periods of low risk premiums".[103]
Compounding the popular expectation that home prices do not fall, it is also widely believed that home values will yield average or better-than-average returns as investments. The investment motive for purchasing homes should not be conflated with the necessity of shelter that housing provides; an economic comparison of the relative costs of owning versus renting the equivalent utility of shelter can be made separately (see boxed text). Over the holding periods of decades, inflation-adjusted house prices have increased less than 1% per year.[74][104]
Homeownership, [realtors] argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time. ... [I]t's now clear that people who chose renting over buying in the last two years made the right move. In much of the country ... recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It's almost as if they have thrown money away, an insult once reserved for renters.[107]
A 2007 Forbes article titled "Don't Buy That House" invokes similar arguments and concludes that for now, "resist the pressure [to buy]. There may be no place like home, but there's no reason you can't rent it."[94]
Promotion in the media
In late 2005 and into 2006, there were an abundance of television programs promoting real estate investment and
In addition to the numerous television shows, book stores in cities throughout the United States could be seen showing large displays of books touting real-estate investment, such as NAR chief economist David Lereah's book Are You Missing the Real Estate Boom?, subtitled Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade - And How to Profit From Them, published in February 2005.[110] One year later, Lereah retitled his book Why the Real Estate Boom Will Not Bust - And How You Can Profit from It.[111]However, following
Upon leaving the NAR in May 2007, Lereah explained to
Speculative fever
The graph above shows the total notional value of derivatives relative to US wealth measures. It is important to note for the casual observer that, in many cases, notional values of derivatives carry little meaning. Often the parties cannot easily agree on terms to close a derivative contract. The common solution has been to create an equal and opposite contract, often with a different party, in order to net payments (Derivatives market#Netting), thus eliminating all but the counterparty risk of the contract, but doubling the nominal value of outstanding contracts.
As
In areas where you have had heavy speculation, you could have 30% [home price declines] ... A year or a year and half from now, you will have seen a slow deterioration of home values and a substantial deterioration in those areas where there has been speculative excess.[119]
The chief economist for the National Association of Home Builders, David Seiders, said that California, Las Vegas, Florida and the Washington, D.C., area "have the largest potential for a price slowdown" because the rising prices in those markets were fed by speculators who bought homes intending to "flip" or sell them for a quick profit.[122] Dallas Fed president Richard Fisher said in 2006 that the Fed held its target rate at 1 percent "longer than it should have been" and unintentionally prompted speculation in the housing market.[72][73]
Various real estate investment advisors openly advocated the use of no money down property flipping, which led to the demise of many speculators who followed this strategy such as Casey Serin.[123][124]
According to a 2020 study, the main driver behind shifts in house prices were shifts in beliefs, rather than a shift in underlying credit conditions.[125]
Buying and selling above normal multiples
Home prices, as a multiple of annual rent, have been 15 since World War II. In the bubble, prices reached a multiple of 26. In 2008, prices had fallen to a multiple of 22.[126]
In some areas houses were selling at multiples of replacement costs, especially when prices were correctly adjusted for depreciation.[127][128] Cost per square foot indexes still show wide variability from city to city, therefore it may be that new houses can be built more cheaply in some areas than asking prices for existing homes.[129] [130] [131] [132]
Possible factors of this variation from city to city are housing supply constraints, both regulatory and geographical. Regulatory constraints such as urban growth boundaries serve to reduce the amount of developable land and thus increase prices for new housing construction. Geographic constraints (water bodies, wetlands, and slopes) cannot be ignored either. It is debatable which type of constraint contributes more to price fluctuations. Some argue that the latter, by inherently increasing the value of land in a defined area (because the amount of usable land is less), give homeowners and developers incentive to support regulations to further protect the value of their property.[133]
In this case, geographical constraints beget regulatory action. To the contrary, others will argue that geographic constraints are only a secondary factor, pointing to the more discernable effects that urban growth boundaries have on housing prices in such places as Portland, OR.[134] Despite the presence of geographic constraints in the surrounding Portland area, their current urban growth boundary does not encompass those areas. Therefore, one would argue, such geographic constraints are a non issue.
Dot-com bubble collapse
The crash of the
Risky mortgage products and lax lending standards
Excessive consumer housing debt was in turn caused by the
Expansion of subprime lending
Low interest rates, high home prices, and flipping (or reselling homes to make a profit), effectively created an almost risk-free environment for lenders because risky or defaulted loans could be paid back by flipping homes.
Private lenders pushed subprime mortgages to capitalize on this, aided by greater market power for mortgage originators and less market power for mortgage securitizers.[21] Subprime mortgages amounted to $35 billion (5% of total originations) in 1994,[140] 9% in 1996,[141] $160 billion (13%) in 1999,[140] and $600 billion (20%) in 2006.[141][142][143]
Risky products
The recent use of
In many areas, particularly in those with most appreciation, non-standard loans went from almost unheard of to prevalent. For example, 80% of all mortgages initiated in San Diego region in 2004 were adjustable-rate, and 47% were interest only.
In 1995, Fannie Mae and Freddie Mac began receiving affordable housing credit for buying Alt-A securities[147] Academic opinion is divided on how much this contributed to GSE purchases of nonprime MBS and to growth of nonprime mortgage origination.[21]
Some borrowers got around downpayment requirements by using seller-funded downpayment assistance programs (DPA), in which a seller gives money to a charitable organizations that then give the money to them. From 2000 through 2006, more than 650,000 buyers got their down payments through nonprofits.[148] According to a Government Accountability Office study, there are higher default and foreclosure rates for these mortgages. The study also showed that sellers inflated home prices to recoup their contributions to the nonprofits.[149]
On May 4, 2006, the IRS ruled that such plans are no longer eligible for non-profit status due to the circular nature of the cash flow, in which the seller pays the charity a "fee" after closing.[150] On October 31, 2007, the Department of Housing and Urban Development adopted new regulations banning so-called "seller-funded" downpayment programs. Most must cease providing grants on FHA loans immediately; one can operate until March 31, 2008.[148]
Mortgage standards became lax because of a moral hazard, where each link in the mortgage chain collected profits while believing it was passing on risk.[21][151] Mortgage denial rates for conventional home purchase loans, reported under the Home Mortgage Disclosure Act, have dropped noticeably, from 29 percent in 1998, to 14 percent in 2002 and 2003.[152] Traditional gatekeepers such as mortgage securitizers and credit rating agencies lost their ability to maintain high standards because of competitive pressures.[21]
Mortgage risks were underestimated by every institution in the chain from originator to investor by underweighting the possibility of falling housing prices given historical trends of rising prices.[153][154] These authors argue that misplaced confidence in innovation and excessive optimism led to miscalculations by both public and private institutions.
In March 2007, the United States' subprime mortgage industry collapsed due to higher-than-expected home foreclosure rates, with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.[155] Harper's Magazine warned of the danger of rising interest rates for recent homebuyers holding such mortgages, as well as the U.S. economy as a whole: "The problem [is] that prices are falling even as the buyers' total mortgage remains the same or even increases. ... Rising debt-service payments will further divert income from new consumer spending. Taken together, these factors will further shrink the "real" economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagnation or worse."[156]
Factors that could contribute to rising rates are the
To address the problems arising from "liar loans", the Internal Revenue Service updated an income verification tool used by lenders to make confirmation of borrower's claimed income faster and easier.[145] In April 2007, financial problems similar to the subprime mortgages began to appear with Alt-A loans made to homeowners who were thought to be less risky; the delinquency rate for Alt-A mortgages rose in 2007.[159] The manager of the world's largest bond fund PIMCO, warned in June 2007 that the subprime mortgage crisis was not an isolated event and will eventually take a toll on the economy and whose ultimate impact will be on the impaired prices of homes.[160]
See also
References
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- )
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- ^ Seidman, Ellen (2009-06-26). "Don't Blame the Community Reinvestment Act". The American Prospect. Archived from the original on 2010-06-12. Retrieved 2009-08-12.
- SSRN 1728260
- ^ NBER-Agarwal, Benmelich, Bergman, Seru-"Did the Community Reinvestment Act Lead to Risky Lending?"
- ^ Far Too Low for Far Too Long| JW Mason| April 6, 2012
- ^ Morgenson, Gretchen (August 13, 2011). "Conventional Fed Wisdom, Defied". The New York Times.
- ^ Greenspan, Alan (2007-09-16). "A global outlook". Financial Times.
- ^ Congressman Barney Frank Hearing Before the Committee on Financial Services: US House of Representatives, 108th Congress, first session,9-10-2003 pg 3
- ^ Hearing Before the Committee on Banking, Housing, and Urban Affairs: US Senate, 108th Congress, first and second session,2-25-2004 pg 454
- ^ "A (Sub)Prime Argument for More Regulation" Financial Times, pg 11 8-20-2007 quotes Congressman Barney Frank
- ^ Senator Dodd
- ^ Greenspan, Alan (2005-12-06). "Housing Bubble Bursts in the Market for U.S. Mortgage Bonds". Bloomberg.
Froth in housing markets may be spilling over into mortgage markets.
- Federal Reserve Board. September 2005.
Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission.
- ^ Roach, Stephen (2004-02-26). "The American economy: A phoney recovery, Drug addicts get only a temporary high. America's economy, addicted to asset appreciation and debt, is no different". The Economist.
The Fed, in effect, has become a serial bubble blower.
- ^ Wallace-Wells, Benjamin (April 2004). "There Goes the Neighborhood: Why home prices are about to plummet—and take the recovery with them". Washington Monthly.
- ^ Roach, Stephen (2005). "Morgan Stanley Global Economic Forum: Original Sin". Morgan Stanley. See also James Wolcott's comments Archived 2006-10-18 at the Wayback Machine.
- ISBN 978-0-670-03486-4.
- ^ Krugman, Paul (2006-08-07). "Intimations of a Recession". The New York Times.
- ^ Fleckenstein, Bill (2006-08-21). "Face it: The housing bust is here". MSN. Archived from the original on 2011-07-14. Retrieved 2008-07-11.
- ^ BusinessWeek. 2004-07-19. Archived from the originalon 2008-03-04. Retrieved 2008-03-17.
- ^ a b "Official Says Bad Data Fueled Rate Cuts, Housing Speculation". Federal Reserve Bank of Dallas. 2006-11-06.
In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been ... In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets ... Today ... the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving ... sustainable noninflationary growth.
- ^ a b "Fed's Bies, Fisher See Inflation Rate Beginning to Come Down". Bloomberg. 2006-11-03.
- ^ ISBN 978-0-691-12335-6.
- ISBN 978-0465019861.
- ^ a b "Fed holds rates for first time in two years". Financial Times. 2006-08-08.
- ^ Roubini, Nouriel (2006-08-09). "Fed Holds Interest Rates Steady As Slowdown Outweighs Inflation". The Wall Street Journal.
The Fed is facing a nightmare now: the recession will come and easing will not prevent it.
- ^ Reese, Chris (2007-06-14). "Poll: Fed to leave U.S. rates at 5.25 percent through end-2008". Reuters.
- ^ "In bold stroke, Fed cuts base rate half point to 4.75 percent". AFP. 2007-09-17. Archived from the original on 2008-05-16. Retrieved 2008-07-11.
- ^ "Greenspan: 'Local bubbles' build in housing sector". USA Today. 2005-05-20.
- ^ "Greenspan alert on US house prices". Financial Times. 2007-09-17.
- ^ "S&P/Case-Shiller Home Price Indices-historical spreadsheets".
- CNNMoney.com. Retrieved 2010-05-26.
- ^ "Home prices tumble as consumer confidence sinks". Reuters. 2007-11-27. Retrieved 2008-03-17.
- ^ Knox, Noelle (2006-11-21). "Cleveland: Foreclosures weigh on market". USA Today.
- ^ a b "Home $weet Home". Time. 2005-06-13. Archived from the original on June 8, 2005.
- ^ Greenspan, Alan (2005-05-20). "Greenspan Calls Home-Price Speculation Unsustainable". Bloomberg. Archived from the original on 2007-09-30. Retrieved 2008-07-11.
At a minimum, there's a little froth [in the U.S. housing market] ... It's hard not to see that there are a lot of local bubbles.
- ^ Evans-Pritchard, Ambrose (2006-03-23). "No mercy now, no bail-out later". The Daily Telegraph. London. Archived from the original on 2006-06-15. Retrieved 2010-04-28.
[T]he American housing boom is now the mother of all bubbles—in sheer volume, if not in degrees of speculative madness.
- PBShttps://www.pbs.org/moyers/journal/06292007/transcript5.html.)
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[Warren Buffett:] Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement ... People go crazy in economics periodically, in all kinds of ways ... when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences.
- ^ Booth, Jenny (2006-01-09). "Soros predicts American recession". The Times. London. Retrieved 2008-03-17.
Mr Soros said he believed the US housing bubble, a major factor behind strong American consumption, had reached its peak and was in the process of being deflated.
- ^ Kiyosaki, Robert (c. 2005). "All Booms Bust". Robert Kiyosaki. Archived from the original on 2006-04-23.
Lately, I have been asked if we are in a real estate bubble. My answer is, 'Duh!' In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, 'Will the bubble burst?' Again, my answer is, 'Duh!
- ^ Shilling, A. Gary (2005-07-21). "The Pin that Bursts the Housing Bubble". Forbes. Archived from the original on July 23, 2005. Retrieved 2008-03-17.
- ^ a b Eaves, Elisabeth (2007-06-26). "Don't Buy That House". Forbes. Archived from the original on July 11, 2007.
- ^ "New recorad: Nearly a half-million real estate licenses". Sacramento Business Journal. 2006-05-23.
To accommodate the demand for real estate licenses, the DRE conducted numerous 'mega-exams' in which thousands of applicants took the real estate license examination ... 'The level of interest in real estate licensure is unprecedented'
- U.S. Census Bureau. 2007-10-26. Archived from the original(PDF) on 2008-02-16. Retrieved 2017-12-06.
- ^ Knox, Noelle (2006-08-10). "For some, renting makes more sense". USA Today. Retrieved 2010-04-28.
- ^ Reported Suspicious Activities Archived 2008-07-24 at the Wayback Machine
- Business Week. 2005-06-22. Archived from the originalon June 25, 2005.
- ^ Roubini, Nouriel (2006-08-26). "Eight Market Spins About Housing by Perma-Bull Spin-Doctors ... And the Reality of the Coming Ugliest Housing Bust Ever ..." RGE Monitor. Archived from the original on 2006-09-03.
A lot of spin is being furiously spinned [sic] around–often from folks close to real estate interests–to minimize the importance of this housing bust, it is worth to point out a number of flawed arguments and misperception that are being peddled around. You will hear many of these arguments over and over again in the financial pages of the media, in sell-side research reports and in innumerous [sic] TV programs. So, be prepared to understand this misinformation, myths and spins.
- ^ Motley Fool. 2006-06-09. Archived from the originalon 2006-06-13.
- ^ Lereah, David (2005-08-24). "Existing home sales drop 4.1% in July, median prices drop in most regions". USA Today.
- Federal Reserve Board.
- ^ Tulipmaniareigns. Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005:
- Herengracht index
- ^ "S&P 500 Index Level Fundamentals".
- ^ Leonhardt, David (2007-04-11). "A Word of Advice During a Housing Slump: Rent". The New York Times. Retrieved 2010-04-28.
- ^ Wiltz, Teresa (2005-12-28). "TV's Hot Properties: Real Estate Reality Shows". The Washington Post. Retrieved 2010-04-28.
- ^ Reality TV programs about flipping include:
- HGTV's House Hunters, What You Get for the Money, Designed to Sell and Buy Me.
- BBC America's Location, Location, Location.
- Discovery Home's Flip That House.
- A&E's Flip This House and Sell This House.
- Bravo's Million Dollar Listing, "a six-episode original series chronicling the high-stakes, cutthroat world of real estate in a thriving market".
- Fine Living programs[citation needed]
- The Learning Channel's Property Ladder and The Adam Carolla Projectin which he "guts his childhood home with the goal of flipping it for more than $1 million."
- ISBN 978-0-385-51434-7.
- ISBN 978-0-385-51435-4.
- Barron's. 2006-08-10.
- ^ The Today Show. NBC. The video of the report is available at an entry of 2006-08-19on the blog Housing Panic.
- ^ a b Lereah, David (2005-05-25). "Average price of home tops $200,000 amid sales frenzy". Reuters.
There's a speculative element in home buying now.
- ^ a b "Public remarks from NAR chief economist David Lereah". 2006-04-27.
- National Public Radio. 2007-05-10.
- ^ Leonhardt, David (2005-05-25). "Steep Rise in Prices for Homes Adds to Worry About a Bubble". The New York Times. Retrieved 2010-04-28.
'There's clearly speculative excess going on', said Joshua Shapiro, the chief United States economist at MFR Inc., an economic research group in New York. 'A lot of people view real estate as a can't lose.'
- ^ Levenson, Eugenia (2006-03-15). "Lowering the Boom? Speculators Gone Mild". Fortune.
America was awash in a stark, raving frenzy that looked every bit as crazy as dot-com stocks.
- ^ Business Week. Archived from the originalon April 20, 2006. Retrieved 2008-03-17.
- ^ Fletcher, June (2006-03-17). "Is There Still Profit to Be Made From Buying Fixer-Upper Homes?". The Wall Street Journal.
- ^ Laperriere, Andrew (2006-04-10). "Housing Bubble Trouble: Have we been living beyond our means?". The Weekly Standard.
- San Diego Union Tribune.
- ^ Knox, Noelle (2006-10-22). "10 mistakes that made flipping a flop". USA Today. Retrieved 2008-03-17.
- ^ Patterson, Randall (2007-03-18). "Russ Whitney Wants You to Be Rich". The New York Times. Retrieved 2008-03-17.
- S2CID 216213116.
- ^ Zuckerman, Mortimer B. (November 17–24, 2008). Editorial:Obama's Problem No. 1. U.S. News & World Report.
- ^ Glaeser, Edward L. (2004). "Housing Supply, The National Bureau of Economic Research, NBER Reporter: Research Summary Spring 2004".
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(help) - ^ Wisconsin School of Business & The Lincoln Institute of Land Policy. "Land Prices for 46 Metro Areas". Archived from the original on 2010-07-01.
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has generic name (help) - ^ "Most Expensive Housing Markets, CNN Money". 2005.
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(help) - ^ Quinn, W. Eddins (2009). "RPX Monthly Housing Market Report, Radar Logic" (PDF). Archived from the original (PDF) on 2011-05-13. Retrieved 2010-09-20.
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(help)See: Exhibit 6 - ^ "Top 20 Most Expensive Cities, Househunt.com". 2009.
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(help) - ^ "How Much Will Your New House Cost?, About.com: Architecture". Archived from the original on 2010-11-14. Retrieved 2010-09-21.
{{cite journal}}
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(help) - ^ Huang, Haifung and Yao Tang, "Dropping the Geographic-Constraint Variable Makes Only a Minor Difference: Reply to Cox", Econ Journal Watch 8(1): 28-32, January 2011.
- ^ Cox, Wendell. "Constraints on Housing Supply: Natural and Regulatory", Econ Journal Watch 8(1): 13-27, January 2011.
- Barron's.
Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker.
- ^ Baker, Dean (July 2005). "The Housing Bubble Fact Sheet" (PDF). Center for Economic and Policy Research. Archived from the original (PDF) on 2007-02-03.
The generalized bubble in housing prices is comparable to the bubble in stock prices in the late 1990s. The eventual collapse of the housing bubble will have an even larger impact than the collapse of the stock bubble, since housing wealth is far more evenly distributed than stock wealth.
- ^ Salmon, Felix (February 23, 2009). "Recipe for Disaster: The Formula That Killed Wall Street". Wired. Retrieved 3 April 2013.
- ]
- ISBN 9781118531839.
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- ^ "FRB: Speech-Bernanke, Fostering Sustainable Homeownership-14 March 2008". Federalreserve.gov. Retrieved 2008-10-26.
- ^ Holmes, Steven A. (1999-09-30). "Fannie Mae Eases Credit To Aid Mortgage Lending". The New York Times.
- ^ "Adjustable-rate loans come home to roost: Some squeezed as interest rises, home values sag". The Boston Globe. 2006-01-11. Archived from the original on May 23, 2008.
- ^ a b "Lenders Will Be Spotting Income Fibs Much Faster". Hartford Courant. 2006-10-01. Archived from the original on 2008-10-06. Retrieved 2008-07-11.
- Motley Fool. 2006-09-25. Archived from the originalon 2006-12-01. Retrieved 2008-07-11.
- ^ Leonnig, Carol D. (June 10, 2008). "How HUD Mortgage Policy Fed The Crisis". Washington Post.
- ^ a b Lewis, Holden. "Feds cut down-payment assistance programs". Bankrate.com. Retrieved 2008-03-17.
- ^ "Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance" (PDF). Government Accountability Office. November 2006. Archived from the original (PDF) on 2008-03-27. Retrieved 2008-03-17.
- ^ "IRS Targets Down-Payment-Assistance Scams; Seller-Funded Programs Do Not Qualify As Tax Exempt". Internal Revenue Service. 2006-05-04. Archived from the original on 2008-03-21. Retrieved 2008-03-17.
- ^ Lewis, Holden (2007-04-18). "'Moral hazard' helps shape mortgage mess". Bankrate.com.
- ^ "(untitled)" (Press release). Federal Financial Institutions Examination Council. 2004-07-26. Retrieved 2008-03-18.
- ^ Samuelson, Robert J. (2011). "Reckless Optimism". Claremont Review of Books. XII (1): 13. Archived from the original on 2012-04-13. Retrieved 2012-04-13.
- ^ Kourlas, James (April 12, 2012). "Lessons Not Learned From the Housing Crisis". The Atlas Society. Retrieved April 12, 2012.
- BusinessWeek. 2007-03-07. Archived from the originalon November 7, 2012.
- ^ Hudson, Michael (May 2006). "The New Road to Serfdom". Harper's Magazine. Vol. 312, no. 1872. pp. 39–46.
- ^ "Payment Option ARM".
- BusinessWeek. Archived from the originalon November 16, 2006.
- ^ Bajaj, Vikas (2007-04-10). "Defaults Rise in Next Level of Mortgages". The New York Times. Retrieved 2010-04-28.
- CNNMoney.com. 2007-06-27. [dead link]