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2000s United States housing bubble

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Median cost to purchase a home by U.S. state
Median cost to purchase a home by U.S. metro area
Fig. 1:Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields, fromIrrational Exuberance,2nd ed.[1]Shiller shows that inflation-adjusted U.S. home prices increased 0.4% per year from 1890 to 2004 and 0.7% per year from 1940 to 2004, whereas U.S. census data from 1940 to 2004 shows that the self-assessed value increased 2% per year.
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The2000s United States housing bubbleorhouse price boomor2000shousing cycle[2]was a sharp run up and subsequent collapse of house asset prices affecting over half of theU.S. states.In many regions areal estate bubble,it was the impetus for thesubprime mortgage crisis.Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011.[3]On December 30, 2008, theCase–Shiller home price indexreported the largest price drop in its history.[4]The credit crisis resulting from the bursting of the housing bubble is an important cause of theGreat Recession in the United States.[5]

Increasedforeclosurerates in 2006–2007 among U.S. homeowners led to acrisisin August 2008 for thesubprime,Alt-A,collateralized debt obligation(CDO),mortgage,credit,hedge fund,andforeign bankmarkets.[6]In October 2007,Henry Paulson,theU.S. Secretary of the Treasury,called the bursting housing bubble "the most significant risk to our economy".[7]

A bubble had the potential to affect not only on home valuations, but also mortgage markets, home builders,real estate,home supply retail outlets,Wall Streethedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession.[8][9][10][11]Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused PresidentGeorge W. Bushand theChairman of the Federal ReserveBen Bernanketo announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.[12]

In 2008 alone, the United States government allocated over $900 billion (~$1.25 trillion in 2023) to special loans and rescues related to the U.S. housing bubble. This was shared between the public sector and theprivate sector.Because of the large market share ofFederal National Mortgage Association (Fannie Mae)and theFederal Home Loan Mortgage Corporation (Freddie Mac)(both of which aregovernment-sponsored enterprises) as well as theFederal Housing Administration,they received a substantial share of government support, even though their mortgages were more conservatively underwritten and actually performed better than those of the private sector.[13]

Background

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Land prices contributed much more to the price increases than did structures. This can be seen in the building cost index in Fig. 1. An estimate of land value for a house can be derived by subtracting the replacement value of the structure, adjusted for depreciation, from the home price. Using this methodology, Davis and Palumbo calculated land values for 46 U.S. metro areas, which can be found at the website for the Lincoln Institute for Land Policy.[14]

Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in thevaluationsofreal propertyuntil unsustainable levels are reached relative to incomes,price-to-rent ratios,and other economic indicators of affordability. This may be followed by decreases in home prices that result in many owners finding themselves in a position ofnegative equity—a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include tax policy (exemption of housing from capital gains), historically low interest rates, lax lending standards, failure of regulators to intervene, andspeculative fever.[6][8][15][16][17][18]This bubble may be related to thestock marketordot-com bubbleof the 1990s.[1][19][20][21][22]This bubble roughly coincides with thereal-estate bubblesof the United Kingdom, Hong Kong, Spain,[23]Poland, Hungary and South Korea.[24][25]

While bubbles may be identifiable in progress, bubbles can be definitively measured only in hindsight after a market correction,[26]which began in 2005–2006 for the U.S. housing market.[27][28][29][30][31][32]Former U.S.Federal Reserve BoardChairmanAlan Greenspansaid "We had abubblein housing ",[33][34]and also said in the wake of thesubprime mortgage and credit crisisin 2007, "I really didn't get it until very late in 2005 and 2006.".[35]

Themortgage and credit crisiswas caused by the inability of a large number of home owners to pay their mortgages as their low introductory-rate mortgages reverted to regular interest rates.Freddie MacCEORichard Syronconcluded, "We had a bubble",[36]and concurred withYaleeconomistRobert Shiller's warning that home prices appear overvalued and that the correction could last years, with trillions of dollars of home value being lost.[36]Greenspan warned of "large double digit declines" in home values "larger than most people expect".[34]

Problems for home owners with good credit surfaced in mid-2007, causing the United States' largest mortgage lender,Countrywide Financial,to warn that a recovery in the housing sector was not expected to occur at least until 2009 because home prices were falling "almost like never before, with the exception of theGreat Depression".[9]The impact of booming home valuations on theU.S. economysince the 2001–2002recessionwas an important factor in the recovery, because a large component ofconsumer spendingwas fueled by the related refinancing boom, which allowed people to both reduce their monthly mortgage payments with lower interest rates and withdraw equity from their homes as their value increased.[8]

Timeline

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Main article:Timeline of the United States housing bubble
Housing pricestopersonal incomeratios bymetro area
Los Angeles
San Jose
Denver
New York
Seattle
Boston
United Statesaverage
Dallas
Chicago
Detroit

Contemporary discussion of the housing price boom

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The median and average sales prices of new homes sold in the United States between 1963 and 2010[37]

During the run up in asset prices and before the Great Recession, various parties described the housing market as a bubble or contested that designation.

Predictions of a bubble

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Especially in late 2004 and early 2005, numerous economic and cultural factors led several economists to argue that a housing bubble existed in the U.S.[1][26][38][39][40][41][42][43]Dean Bakeridentified the bubble in August 2002, thereafter repeatedly warning of its nature and depth, and the political reasons it was being ignored.[44][45]Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his original publication ofIrrational Exuberancein the year 2000.Peter Schiffalso called the bubble early on and was vocal about it on television and wrote abookdetailing his predictions of the fallout.[46]

The burst of the housing bubble was predicted by a handful of political and economic analysts, such as Jeffery Robert Hunn in a March 3, 2003, editorial. Hunn wrote:

[W]e can profit from the collapse of the credit bubble and the subsequent stock market divestment [(decline)]. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).[47]

An August 2008 article inThe New York Times reported that in mid-2004Richard F. Syron,the CEO ofFreddie Mac,received a memo from David Andrukonis, the company's formerchief risk officer,warning him that Freddie Mac was financing risk-laden loans that threatened Freddie Mac's financial stability. In his memo, Mr. Andrukonis wrote that these loans "would likely pose an enormous financial andreputational riskto the company and the country ".[48]The article revealed that more than two-dozen high-ranking executives said that Mr. Syron had simply decided to ignore thewarnings.

Other cautions came as early as 2001, when the late Federal Reserve governorEdward Gramlichwarned of the risks posed by subprime mortgages.[49]In September 2003, at a hearing of theHouse Financial Services Committee,CongressmanRon Paulidentified the housing bubble and foretold the difficulties it would cause: "Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss."[50]Reutersreported in October 2007 that aMerrill Lynchanalyst too had warned in 2006 that companies could suffer from theirsubprime investments.

TheEconomistmagazine stated, "The worldwide rise in house prices is the biggest bubble in history",[51]so any explanation needs to consider its global causes as well as those specific to the United States. The then Federal Reserve Board Chairman Alan Greenspan said in mid-2005 that "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"; Greenspan admitted in 2007 thatfroth"was a euphemism for a bubble".[34]In early 2006, President Bush said of the U.S. housing boom: "If houses get too expensive, people will stop buying them... Economies should cycle".[52]

Predictions of no bubble

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Many contested any suggestion that there could be a housing bubble, particularly at its peak from 2004 to 2006,[53]with some rejecting the "house bubble" label in 2008.[54]

The chief economist ofFreddie Macand the director ofJoint Center for Housing Studies(JCHS) disputed the existence of a national housing bubble and expressed doubt that any significant decline in home prices was possible, citing consistently rising prices since theGreat Depression,an anticipated increased demand from theBaby Boomgeneration, and healthy levels of employment.[55][56][57]David Lereah,former chief economist of theNational Association of Realtors(NAR), distributed "Anti-Bubble Reports" in August 2005 to "respond to the irresponsible bubble accusations made by your local media and local academics".[58]

Price correction

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On the basis of 2006 market data that were indicating a marked decline, including lower sales, rising inventories, fallingmedianprices and increased foreclosure rates,[59]some economists have concluded that the correction in the U.S. housing market began in 2006.[10][60]A May 2006Fortunemagazine report on the US housing bubble states: "The great housing bubble has finally started to deflate... In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials."[28]

Among other statements, the reports stated that people "should [not] be concerned that home prices are rising faster than family income", that "there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors", and that "a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms".[citation needed]Following reports of rapid sales declines and price depreciation in August 2006,[61][62]Lereah admitted that he expected "home prices to come down 5% nationally, more in some markets, less in others. And a few cities in Florida and California, where home prices soared to nose-bleed heights, could have 'hard landings'."[31]

National home sales and prices both fell dramatically in March 2007 — the steepest plunge since the 1989Savings and Loan crisis.According toNARdata, sales were down 13% to 482,000 from the peak of 554,000 in March 2006, and the national median price fell nearly 6% to $217,000 from a peak of $230,200 in July 2006.[32]

John A. Kilpatrick from Greenfield Advisors was cited byBloomberg Newson June 14, 2007, on the linkage between increased foreclosures and localized housing price declines: "Living in an area with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values". He went on to say, "In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. The innocent houses that just happen to be sitting next to those properties are going to take a hit."[63]

TheUS SenateBanking Committeeheld hearings on the housing bubble and related loan practices in 2006, titled "The Housing Bubble and its Implications for the Economy" and "Calculated Risk: Assessing Non-Traditional Mortgage Products". Following thecollapseof thesubprimemortgage industry in March 2007, SenatorChris Dodd,Chairman of theBanking Committeeheld hearings and asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that "predatory lending" had endangered home ownership for millions of people.[18]In addition, Democratic senators such as SenatorCharles Schumerof New York were already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences.[18]

Causes

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Main article:Causes of the United States housing bubble

Geographic Extent

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Inflation-adjusted housing prices in the United States by state, 1998–2006

Economists have debated whether the early 2000s house price boom involved nationwide or local bubbles.

As early as 2005, because of non-uniform price appreciation, some economists, including formerFedChairmanAlan Greenspan,argued that United States was not experiencing a nationwide housing bubbleper se,but a number of local bubbles.[64]In 2007, however, Greenspan stated that "all the froth bubbles add up to an aggregate bubble".[34]

Despite greatly relaxed lending standards and low interest rates, many regions of the country saw very little price appreciation during the "bubble period". Out of 20 largest metropolitan areas tracked by theS&P/Case-Shillerhouse price index,six (Dallas, Cleveland, Detroit, Denver, Atlanta, and Charlotte) saw less than 10% price growth in inflation-adjusted terms in 2001–2006.[65]During the same period, seven metropolitan areas (Tampa, Miami, San Diego, Los Angeles, Las Vegas, Phoenix, and Washington, D.C.) appreciated by more than 80%.

However, housing bubbles did not manifest themselves in each of these areas at the same time. San Diego and Los Angeles had maintained consistently high appreciation rates since late 1990s, whereas the Las Vegas and Phoenix bubbles did not develop until 2003 and 2004 respectively. It was in the East Coast, the more populated part of the country where the economic real estate turmoil was the worst.

Somewhat paradoxically, as the housing bubble deflates[66]some metropolitan areas (such as Denver and Atlanta) have been experiencing highforeclosurerates, 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 theRust Beltsuch asDetroit[67]andCleveland,[68]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.

By July 2008, year-to-date prices had declined in 24 of 25 U.S. metropolitan areas, with California and the southwest experiencing the greatest price falls. According to the reports, only Milwaukee had seen an increase in house prices after July 2007.[69]

Side effects

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Prior to the real estate market correction of 2006–2007, the unprecedented increase in house prices starting in 1997 produced numerous wide-ranging effects in the economy of the United States.

Housing starts in the United States, 1959–2021
Single family home
Multifamily residential
2-4 unit residential
  • One of the most direct effects was on the construction of new houses. In 2005, 1,283,000 new single-family houses were sold, compared with an average of 609,000 per year during 1990–1995.[70]The largest home builders, such asD. R. Horton,PulteGroup,andLennar,improved operations significantly. D. R. Horton's stock went from $3 in early 1997 to all-time high of $42.82 on July 20, 2005. Pulte Corp's revenues grew from $2.33 billion in 1996 to $14.69 billion in 2005.[71][72][73]
  • Mortgage equity withdrawals– primarily home equity loans andcash out refinancings– grew considerably since the early 1990s. According to US Federal Reserve estimates, in 2005 homeowners extracted $750 billion of equity from their homes (up from $106 billion in 1996), spending two thirds of it on personal consumption, home improvements, and credit card debt.[74]
  • It is widely believed that the increased degree of economic activity produced by the expanding housing bubble in 2001–2003 was partly responsible for averting a full-scalerecessionin the U.S. economy following the dot-com bust andoffshoringto China. Analysts believed that with the downturn in the two sectors, the economy from the early 2000s to 2007 evaded what would have been stagnant growth with a booming housing market creating jobs, economic demand along with a consumer boom that came from home value withdraws until the housing market began a correction.[75]
  • Rapidly growing house prices and increasing price gradients forced many residents to flee the expensive centers of many metropolitan areas, resulting in the explosive growth ofexurbsin some regions. The population ofRiverside County, Californiaalmost doubled from 1,170,413 in 1990 to 2,026,803 in 2006, due to its relative proximity toSan DiegoandLos Angeles.On the East Coast,Loudoun County, Virginia,nearWashington, D.C.,saw its population triple between 1990 and 2006.[76][citation needed]
  • Extreme regional differences in land prices. The differences in housing prices are mainly due to differences in land values, which reached 85% of the total value of houses in the highest priced markets at the peak.[14]The Wisconsin Business School publishes an on line database with building cost and land values for 46 U.S. metro areas.[14]One of the fastest-growing regions in the United States for the last several decades was the Atlanta, Georgia metro area, where land values are a small fraction of those in the high-priced markets. High land values contribute to high living costs in general and are part of the reason for the decline of the old industrial centers while new automobile plants, for example, were built throughout the South, which grew in population faster than the other regions.
  • People who either experienced foreclosures or live near foreclosures have a higher probability of falling ill or at the very least dealing with increased anxiety. Overall, it is reported that homeowners who are unable to afford living in their desired locations experience higher instances of poor health. Besides health issues, the unstable housing market has also been shown to increase instances of violence. They subsequently begin to fear that their own homes may be taken from them. Increases in anxiety have at the very least been commonly noted. There is a fear that foreclosures bring about these reactions in people who anticipate the same thing happening to them. An uptick on violent occurrences has also been shown to follow neighborhoods where such uncertainty exists.[citation needed]

These trends were reversed during the real estate market correction of 2006–2007. As of August 2007, D.R. Horton's and Pulte Corp's shares had fallen to 1/3 of their respective peak levels as new residential home sales fell. Some of the cities and regions that had experienced the fastest growth during 2000–2005 began to experience highforeclosurerates.[66]It was suggested that the weakness of the housing industry and the loss of the consumption that had been driven by the withdrawal of mortgage equity could lead to a recession, but as of mid-2007 the existence of this recession had not yet been ascertained.[77]In March 2008,Thomson Financialreported that the "Chicago Federal Reserve Bank's National Activity Index for February sent a signal that a recession [had] probably begun ".[78]

The share prices ofFannie MaeandFreddie Macplummeted in 2008 as investors worried that they lacked sufficient capital to cover the losses on their $5 (~$6.95 trillion in 2023) trillion portfolio of loans and loan guarantees.[79]On June 16, 2010, it was announced that Fannie Mae and Freddie Mac would be delisted from the New York Stock Exchange; shares now trade on the over-the-counter market.[80]

Housing market correction

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Main article:United States housing market correction
Comparison of the percentage change in theCase-Shiller Home Price Indexfor the housing corrections in the periods beginning in 2005 (red) and the 1980s–1990s (blue), comparing monthlyCSIvalues with the peak values immediately prior to the first month of decline all the way through the downturn and the full recovery of home prices.

NARchief economist David Lereah's explanation, "What Happened", from the 2006 NAR Leadership Conference[81]

  • Boom ended in August 2005
  • Mortgage rates rose almost one point
  • Affordability conditions deteriorated
  • Speculative investors pulled out
  • Homebuyer confidence plunged
  • Resort buyers went to sidelines
  • Trade-up buyers went to sidelines
  • First-time buyers priced out of market

Basing their statements on historic U.S. housing valuation trends,[1][82]in 2005 and 2006 many economists and business writers predicted market corrections ranging from a few percentage points to 50% or more from peak values in some markets,[27][83][84][85][86][87]and although this cooling had not yet affected all areas of the U.S., some warned that it still could, and that the correction would be "nasty" and "severe".[88][89]Chief economist Mark Zandi of the economic research firmMoody'sEconomy.com predicted a "crash" of double-digit depreciation in some U.S. cities by 2007–2009.[6][90][91]In a paper he presented to a Federal Reserve Board economic symposium in August 2007, Yale University economistRobert Shillerwarned, "The examples we have of past cycles indicate that major declines in real home prices—even 50 percent declines in some places—are entirely possible going forward from today or from the not-too-distant future."[92]

To better understand how the mortgage crisis played out, a 2012 report from theUniversity of Michigananalyzed data from the Panel Study of Income Dynamics (PSID), which surveyed roughly 9,000 representative households in 2009 and 2011. The data seems to indicate that, while conditions are still difficult, in some ways the crisis is easing: Over the period studied, the percentage of families behind on mortgage payments fell from 2.2 to 1.9; homeowners who thought it was "very likely or somewhat likely" that they would fall behind on payments fell from 6% to 4.6% of families. On the other hand, family's financial liquidity has decreased: "As of 2009, 18.5% of families had no liquid assets, and by 2011 this had grown to 23.4% of families."[93][94]

By mid-2016, the national housing price index was "about 1 percent shy of that 2006 bubble peak" in nominal terms[95]but 20% below in inflation adjusted terms.[96]

Subprime mortgage industry collapse

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Main article:Subprime mortgage crisis
Bank runon the U.K.'sNorthern RockBank by customers queuing to withdraw savings in a panic related to the U.S. subprime crisis

In March 2007, the United States'subprimemortgage industrycollapseddue to higher-than-expected homeforeclosurerates (no verifying source), with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.[97]The stock of the country's largest subprime lender,New Century Financial,plunged 84% amidJustice Departmentinvestigations, before ultimately filing forChapter 11bankruptcy on April 2, 2007, with liabilities exceeding $100 million (~$142 million in 2023).[98]

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 would eventually take a toll on the economy and ultimately have an impact in the form of impaired home prices.[99]Bill Gross,a "most reputable financial guru",[11]sarcastically and ominously criticized thecredit ratingsof the mortgage-basedCDOsnow facing collapse:

AAA? You were wooed, Mr.Moody'sand Mr.Poor's,by the makeup, those six-inch hooker heels, and a "tramp stamp."Many of these good-looking girls are not high-class assets worth 100 cents on the dollar... [T]he point is that there are hundreds of billions of dollars of this toxic waste... This problem [ultimately] resides in America's heartland, with millions and millions of overpriced homes.[11]

Business Week has featured predictions by financial analysts that the subprime mortgage market meltdown would result in earnings reductions for largeWall Streetinvestment banks trading inmortgage-backed securities,especiallyBear Stearns,Lehman Brothers,Goldman Sachs,Merrill Lynch,andMorgan Stanley.[97]The solvency of two troubledhedge fundsmanaged byBear Stearnswas imperiled in June 2007 afterMerrill Lynchsold off assets seized from the funds and three other banks closed out their positions with them. The Bear Stearns funds once had over $20 billion of assets, but lost billions of dollars on securities backed by subprime mortgages.[100]

H&R Blockreported that it had made a quarterly loss of $677 million on discontinued operations, which included the subprime lender Option One, as well as writedowns, loss provisions for mortgage loans and the lower prices achievable for mortgages in the secondary market. The unit's net asset value had fallen 21% to $1.1 billion as of April 30, 2007.[101]The head of the mortgage industry consulting firm Wakefield Co. warned, "This is going to be a meltdown of unparalleled proportions. Billions will be lost."Bear Stearnspledged up to U.S. $3.2 billion (~$4.53 billion in 2023) in loans on June 22, 2007, to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.[102]

Peter Schiff,president of Euro Pacific Capital, argued that if the bonds in theBear Stearnsfunds were auctioned on the open market, much weaker values would be plainly revealed. Schiff added, "This would force other hedge funds to similarly mark down the value of their holdings. Is it any wonder that Wall street is pulling out the stops to avoid such a catastrophe?... Their true weakness will finally reveal the abyss into which the housing market is about to plummet."[103]TheNew York Timesreport connects the hedge fund crisis with lax lending standards: "The crisis this week from the near collapse of two hedge funds managed by Bear Stearns stems directly from the slumping housing market and the fallout from loose lending practices that showered money on people with weak, or subprime, credit, leaving many of them struggling to stay in their homes."[102]

On August 9, 2007,BNP Paribasannounced that it could not fairly value the underlying assets in three funds because of its exposure to U.S.subprimemortgage lending markets.[104]Faced with potentially massive (though unquantifiable) exposure, theEuropean Central Bank(ECB) immediately stepped in to ease market worries by opening lines of €96.8 billion (U.S. $130 billion) of low-interest credit.[105]One day after the financial panic about a credit crunch had swept through Europe, the U.S. Federal Reserve Bank conducted an "open market operation"to inject U.S. $38 billion in temporary reserves into the system to help overcome the ill effects of a spreading credit crunch, on top of a similar move the previous day.[citation needed]In order to further ease the credit crunch in the U.S. credit market, at 8:15 a.m. on August 17, 2007, the chairman of the Federal Reserve BankBen Bernankedecided to lower thediscount windowrate, which is the lending rate between banks and the Federal Reserve Bank, by 50 basis points to 5.75% from 6.25%. The Federal Reserve Bank stated that the recent turmoil in the U.S. financial markets had raised the risk of an economic downturn.

In the wake of the mortgage industry meltdown, SenatorChris Dodd,chairman of theBanking Committee,held hearings in March 2007 in which he asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that "predatory lending practices" were endangering home ownership for millions of people.[18]In addition, Democratic senators such as SenatorCharles Schumerof New York were already proposing a federal government bailout of subprime borrowers like the bailout made in the savings and loan crisis, in order to save homeowners from losing their residences. Opponents of such a proposal[who?]asserted that a government bailout of subprime borrowers was not in the best interests of the U.S. economy because it would simply set a bad precedent, create amoral hazard,and worsen the speculation problem in the housing market.

Lou RanieriofSalomon Brothers,creator of themortgage-backed securitiesmarket in the 1970s, warned of the future impact of mortgage defaults: "This is the leading edge of the storm... If you think this is bad, imagine what it's going to be like in the middle of the crisis." In his opinion, more than $100 billion of home loans were likely to default when the problems seen in the subprime industry also emerge in the prime mortgage markets.[106]

Former Federal Reserve Chairman Alan Greenspan had praised the rise of the subprime mortgage industry and the tools which it uses to assess credit-worthiness in an April 2005 speech.[107]Because of these remarks, as well as his encouragement of the use of adjustable-rate mortgages, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry that triggered theeconomic crisis of 2008.[108][109]On October 15, 2008, Anthony Faiola, Ellen Nakashima and Jill Drew wrote a lengthy article inThe Washington Posttitled, "What Went Wrong".[110]In their investigation, the authors claim that Greenspan vehemently opposed any regulation offinancial instrumentsknown asderivatives.They further claim that Greenspan actively sought to undermine the office of theCommodity Futures Trading Commission,specifically under the leadership ofBrooksley E. Born,when the Commission sought to initiate the regulation of derivatives. Ultimately, it was the collapse of a specific kind of derivative, themortgage-backed security,that triggered the economic crisis of 2008. Concerning the subprime mortgage mess, Greenspan later admitted that "I really didn't get it until very late in 2005 and 2006."[35]

On September 13, 2007, the British bankNorthern Rockapplied to theBank of Englandfor emergency funds because of liquidity problems related to the subprime crisis.[111]This precipitated abank runat Northern Rock branches across the UK by concerned customers who took out "an estimated £2bn withdrawn in just three days".[112]

See also

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Notes

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  1. ^abcdShiller, Robert (2005).Irrational Exuberance(2d ed.).Princeton University Press.ISBN978-0-691-12335-6.
  2. ^Chodorow-Reich, Gabriel; Guren, Adam M.; McQuade, Timothy J. (October 2022)."The 2000s Housing Cycle With 2020 Hindsight: A Neo-Kindlebergerian View"(PDF).
  3. ^"S&P CoreLogic Case-Shiller Home Price Indices - S&P Dow Jones Indices".standardandpoors.com.Archived fromthe originalon May 22, 2013.RetrievedOctober 5,2017.
  4. ^Mantell, Ruth."Home prices off record 18% in past year, Case-Schiller says".marketwatch.com.RetrievedApril 29,2009.
  5. ^Holt, Jeff."A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper"(PDF).2009, 8, 1, 120-129.The Journal of Business Inquiry. Archived fromthe original(PDF)on October 17, 2014.RetrievedFebruary 15,2013.
  6. ^abc"In Washington, big business and big money are writing the rules on trade...".Bill Moyers Journal.June 29, 2007.PBS.
  7. ^"Housing woes take bigger toll on economy than expected: Paulson".AFP.October 17, 2007. Archived fromthe originalon September 18, 2010.
  8. ^abcLaperriere, Andrew (April 10, 2006)."Housing Bubble Trouble: Have we been living beyond our means?".The Weekly Standard.Archived fromthe originalon April 8, 2006.
  9. ^abBajaj, Vikas (July 25, 2007)."Lender Sees Mortgage Woes for 'Good' Risks".The New York Times.RetrievedMay 26,2010.
  10. ^abRoubini, Nouriel (August 23, 2006)."Recession will be nasty and deep, economist says".MarketWatch.This is the biggest housing slump in the last four or five decades: every housing indicator is in free fall, including now housing prices.
  11. ^abc"When mainstream analysts compare CDOs to 'subslime', 'toxic waste' and 'six-inch hooker heels'..."RGE Monitor. June 27, 2007. Archived fromthe originalon June 29, 2007.
  12. ^Solomon, Deborah (August 31, 2007)."Bush Moves to Aid Homeowners".The Wall Street Journal.
  13. ^Reuters. (2008).FACTBOX – U.S. government bailout tally tops 504 billion pounds.
  14. ^abc"Land Prices for 46 Metro Areas".Updated Quarterly.Wisconsin School of Business & The Lincoln Institute of Land Policy. 2015. Archived fromthe originalon July 1, 2010.RetrievedJanuary 2,2011.
  15. ^Tax Break May Have Helped Cause Housing Bubble,The New York Times,December 18, 2008
  16. ^Evans-Pritchard, Ambrose (March 23, 2006)."No mercy now, no bail-out later".The Daily Telegraph.London. Archived fromthe originalon June 15, 2006.RetrievedMay 26,2010.[T]he American housing boom is now the mother of all bubbles—in sheer volume, if not in degrees of speculative madness.
  17. ^Levenson, Eugenia (March 15, 2006)."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.
  18. ^abcdPoirier, John (March 19, 2007)."Top five US subprime lenders asked to testify-Dodd".Reuters.RetrievedMarch 17,2008.
  19. ^"Intended federal funds rate, Change and level, 1990 to present".
  20. ^Shiller, Robert (June 20, 2005)."The Bubble's New Home".Barron's.The home-price bubble feels like the stock-market mania in the fall of 1999, just before the stock bubble burst in early 2000, with all the hype, herd investing and absolute confidence in the inevitability of continuing price appreciation. My blood ran slightly cold at a cocktail party the other night when a recent Yale Medical School graduate told me that she was buying a condo to live in Boston during her year-long internship, so that she could flip it for a profit next year.Tulipmaniareigns.Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005:
    Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005.
  21. ^"Is A Housing Bubble About To Burst?".BusinessWeek.July 19, 2004. Archived fromthe originalon March 4, 2008.RetrievedMarch 17,2008.
  22. ^Shiller, Robert (June 20, 2005)."The Bubble's New Home".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.
  23. ^"DETECCIÓN DE BURBUJAS INMOBILIARIAS: EL CASO ESPAÑOL".eumed.net.RetrievedOctober 5,2017.
  24. ^G.R. Putland (June 1, 2009)."From the subprime to the terrigenous: Recession begins at home".Land Values Research Group.
  25. ^Guide, Global Property (August 25, 2008)."The end of Poland's house price boom".Global Property Guide.
  26. ^abA prediction of a correction in the housing market, possibly after the "fall"of 2005, is implied byThe Economistmagazine's cover story for the article "After the fall", which illustrates a brick falling, with the label "House Prices"."After the fall".The Economist.June 16, 2005.
  27. ^ab"The No-Money-Down Disaster".Barron's.August 21, 2006.
  28. ^abTully, Shawn (May 5, 2006)."Welcome to the Dead Zone".Fortune.RetrievedMarch 17,2008. This article classified several U.S. real-estate regions as "Dead Zones", "Danger Zones", and "Safe Havens".
    Fortunemagazine Housing Bubble "Dead Zones"
    "Dead Zones" "Danger Zones" "Safe Havens"
    Boston Chicago Cleveland
    Las Vegas Los Angeles Columbus
    Miami New York Dallas
    Washington D.C. / Northern Virginia San Francisco / Oakland Houston
    Phoenix Seattle Kansas City
    Sacramento Omaha
    San Diego Pittsburgh
  29. ^"Adjustable-rate loans come home to roost: Some squeezed as interest rises, home values sag".Seek Estate.June 2, 2014. Archived fromthe originalon June 2, 2014.
  30. ^"Over 14,000 Phoenix For-Sale Homes Vacant".The Housing Bubble Blog. March 10, 2006.
    Inventory ofhouses for sale in Phoenix, AZfrom July 2005 through March 2006. As of March 10, 2006, well over 14,000 (nearly half) of these for-sale homes were vacant. (Source: Arizona Regional Multiple Listing Service.)
  31. ^abLereah, David (August 24, 2005)."Existing home sales drop 4.1% in July, median prices drop in most regions".USA Today.
  32. ^abNancy Trejos (April 24, 2007)."Existing-Home Sales Fall Steeply".The Washington Post.RetrievedMarch 17,2008.
  33. ^"Alan Greenspan Interview with Jim Lehrer".The NewsHour with Jim Lehrer.September 18, 2007.
  34. ^abcd"Greenspan alert on US house prices".Financial Times.September 17, 2007.Archivedfrom the original on December 11, 2022.RetrievedSeptember 17,2007.
  35. ^abFelsenthal, Mark (September 14, 2007)."Greenspan says didn't see subprime storm brewing".Reuters.
  36. ^ab"Subprime shockwaves".Bloomberg.July 19, 2007.
  37. ^"Median and Average Sales Prices of New Homes Sold in United States"(PDF).Census.gov.RetrievedMay 30,2014.
  38. ^Hudson, Michael (May 2006). "The New Road to Serfdom".Harper's.Vol. 312, no. 1872. pp. 39–46.
  39. ^Leamer, Ed (August 23, 2006)."Is economy headed to a soft landing?".USA Today.This soft-landing scenario is a fantasy... Anything housing-related is going to feel like a recession, almost like a depression.
  40. ^Hamilton, Jim (August 25, 2006)."New home sales continue to fall".Econbrowser.Archived fromthe originalon September 1, 2006.No question about it, the housing downturn is here now, and it's big.
  41. ^Shiller, Robert (August 20, 2006)."Bloomberg Interview of Robert Shiller".Bloomberg.
  42. ^Roubini, Nouriel (August 26, 2006)."Eight Market Spins About Housing by Perma-Bull Spin-Doctors... And the Reality of the Coming Ugliest Housing Bust Ever..."RGE Monitor.Archived fromthe originalon September 3, 2006.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.
  43. ^Baker, Dean (August 2002)."The Run-Up in Home Prices: Is it Real or Is it Another Bubble?".Center for Economic and Policy Research. Archived fromthe originalon April 23, 2009.RetrievedJune 12,2011.
  44. ^Baker, Dean (August 9, 2004)."Bush's House of Card".The Nation.
  45. ^Folkenflik, David (December 4, 2008)."The Man Who Predicted The Economic Meltdown".NPR.
  46. ^Jeffrey Robert,Why are my investments diving…and what can I do about it?ArchivedApril 21, 2011, at theWayback Machine.
  47. ^Duhigg, Charles (August 5, 2008)."At Freddie Mac, Chief Discarded Warning Signs".The New York Times.
  48. ^Ip, Greg (June 9, 2007)."Did Greenspan Add to Subprime Woes?".Wall Street Journal.RetrievedOctober 5,2017– via wsj.com.
  49. ^"Fannie Mae and Freddie Mac Subsidies Distort the".Archived fromthe originalon May 21, 2012.RetrievedMay 22,2012.
  50. ^"In come the waves: The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops".The Economist.June 16, 2005.The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.
  51. ^"President Highlights Importance of Small Business in Economic Growth"(Press release).The White House.January 19, 2006.[President Bush was asked about the housing boom's impact on the ability of the questioner's children to purchase a home. The President answered:] '... If houses get too expensive, people will stop buying them, which will cause people to adjust their spending habits... Let the market function properly. I guarantee that your kind of question has been asked throughout the history of homebuilding – you know, prices for my homes are getting bid up so high that I'm afraid I'm not going to have any consumers – or my kid – and yet, things cycle. That's just the way it works. Economies should cycle.'
  52. ^The Unofficial List of Pundits/Experts Who Were Wrong on the Housing Bubble,July 16, 2008, by "Economics of Contempt", lists 25 sources rejecting the "bubble" label.
  53. ^Bubble Denial,Paul Krugman,citesWas there a Housing Bubble?,by Alex Tabarrok, February 13, 2008 as rejecting the label "bubble".
  54. ^"Housing Bubble—or Bunk? Are home prices soaring unsustainably and due for plunge? A group of experts takes a look—and come to very different conclusions".Business Week.June 22, 2005. Archived fromthe originalon July 19, 2008.
  55. ^"The State of the Nation's Housing 2006"(PDF).Harvard University,Joint Center for Housing Studies. 2006. Archived fromthe original(PDF)on October 13, 2006.
  56. ^Retsinas, Nicolas (September 26, 2006)."The housing wail".Scripps Howard News Service.Archived fromthe originalon October 5, 2006.RetrievedOctober 2,2006.The headline hints of catastrophe: a dot-com repeat, a bubble bursting, an economic apocalypse. Cassandra, though, can stop wailing: the expected price corrections mark a slowing in the rate of increase—not a precipitous decline. This will not spark a chain reaction that will devastate homeowners, builders and communities. Contradicting another gloomy seer, Chicken Little, the sky is not falling.
  57. ^Lereah, David (August 2005)."Anti-Bubble Reports".National Association of Realtors.Archived fromthe originalon November 26, 2005.
  58. ^Mian, Atif; Sufi, Amir; Trebbi, Francesco (2015)."Foreclosures, House Prices, and the Real Economy".The Journal of Finance.70(6): 2587–2633.ISSN0022-1082.
  59. ^Baker, Dean (August 2, 2006)."The Slow Motion Train Wreck".The American Prospect.Archived fromthe originalon September 28, 2007.
  60. ^Tully, Shawn (August 25, 2005)."Getting real about the real estate bubble".Fortune.
  61. ^"Housing market may be on ice, but the blame market is red hot".Chicago Tribune.September 10, 2006. Archived fromthe originalon January 13, 2009.
  62. ^Howley, Kathleen (June 14, 2007)."U.S. Mortgages Enter Foreclosure at Record Pace".Bloomberg News.
  63. ^"Greenspan: 'Local bubbles' build in housing sector".USA Today.May 20, 2005.
  64. ^"S&P/Case-Shiller Home Price Indices-historical spreadsheets".
  65. ^abChristie, Les (August 14, 2007)."California cities fill top 10 foreclosure list".CNNMoney.com.RetrievedMay 26,2010.
  66. ^"Home prices tumble as consumer confidence sinks".Reuters.November 27, 2007.RetrievedMarch 17,2008.
  67. ^Knox, Noelle (November 21, 2006)."Cleveland: Foreclosures weigh on market".USA Today.
  68. ^Lynch, Sharon (October 2, 2008)."Metro U.S. Home Prices Fall on Higher Foreclosures".Bloomberg.RetrievedOctober 10,2008.
  69. ^"Number of Stories in New One-Family Houses Sold"(PDF).
  70. ^"D.R. Horton, Inc. (DHI) Stock Historical Prices & Data - Yahoo Finance".finance.yahoo.com.
  71. ^"Pulte Corp. 2006 Annual Report".Archived fromthe originalon August 19, 2007.
  72. ^"Pulte Corp. 1996 Form 10-K – Annual report".
  73. ^"Sources and Uses of Equity Extracted from Homes"(PDF).
  74. ^"America's Unsustainable Boom".Mises Institute.November 5, 2004.
  75. ^"LOUDOUN COUNTY POPULATION: 2017 ESTIMATE SERIES".Loudoun County, Virginia.October 2017.RetrievedAugust 28,2018.[dead link]
  76. ^"Bureau of Economic Analysis GDP estimate, Q2 2007"(PDF)(Press release). July 27, 2007. Archived fromthe original(PDF)on May 2, 2017.RetrievedMarch 24,2008.
  77. ^"Chicago Fed index indicates recession has probably begun".Forbes.Thomson Financial.March 24, 2008. Archived fromthe originalon May 14, 2008.RetrievedMarch 24,2008.
  78. ^Grynbaum, Michael M. (July 12, 2008)."Woes at Loan Agencies and Oil-Price Spike Roil Markets".The New York Times.RetrievedOctober 5,2017.
  79. ^"Fannie, Freddie Delisting Signals Firms Have No Value".The Wall Street Journal.June 16, 2010. Archived fromthe originalon June 21, 2010.
  80. ^ Lereah, David (August 17, 2006)."Real Estate Reality Check (Powerpoint talk)".National Association of RealtorsLeadership Summit. Archived fromthe original(Powerpoint)on September 1, 2006.RetrievedAugust 28,2006.
    Condominium Price Appreciation (percentages) in the south and west United States, 2002–2006. (Source:NAR.)
  81. ^Baker, Dean (July 27, 2004)."The bubble question".CNNMoney.com.There has never been a run up in home prices like this.
  82. ^Searjeant, Graham (August 27, 2005)."US heading for house price crash, Greenspan tells buyers".The Times.London. Archived fromthe originalon March 9, 2007.RetrievedMay 26,2010.Alan Greenspan, the United States's central banker, warned American homebuyers that they risk a crash if they continue to drive property prices higher... On traditional tests, about a third of U.S. local homes markets are now markedly overpriced.
  83. ^Zweig, Jason (May 8, 2006)."Buffett: Real estate slowdown ahead".CNNMoney.com.Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing... Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins and mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun—and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice.
  84. ^"Surviving a Real-Estate Slowdown".The Wall Street Journal.July 5, 2006.A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.
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  86. ^"Bubble Blog".Newsweek.August 8, 2006. Archived fromthe originalon August 22, 2006.
  87. ^Krugman, Paul (January 2, 2006)."No bubble trouble?".The New York Times.[T]he overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead.
  88. ^"Housing bubble correction could be severe".U.S. News & World Report.June 13, 2006. Archived fromthe originalon July 4, 2007.
  89. ^"Study sees '07 'crash' in some housing".Chicago Tribune.October 5, 2006. Archived fromthe originalon January 14, 2009.
  90. ^Clabaugh, Jeff (October 2, 2006)."Moody's predicts big drop in Washington housing prices".Washington Business Journal.
  91. ^"Two top US economists present scary scenarios for US economy; House prices in some areas may fall as much as 50% – Housing contraction threatens a broader recession".Finfacts Ireland. September 3, 2007.The examples we have of past cycles indicate that major declines in real home prices—even 50 per cent declines in some places—are entirely possible going forward from today or from the not-too-distant future.
  92. ^"Mortgage Distress and Financial Liquidity: How U.S. Families are Handling Savings, Mortgages and Other Debts".JournalistsResource.org, retrieved June 18, 2012
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  94. ^Diana Olick (August 29, 2016)."We're in a new housing bubble: Why it's less scary this time".CNBC.
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  107. ^Stephen Roach(March 16, 2007)."The Great Unraveling".Morgan Stanley.In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of subprime borrowing—the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to 'take the punchbowl away just when the party is getting good,' Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent U.S. economy. I fear history will not judge the Maestro's legacy kindly.
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