2000s United States housing bubble

The 2000s United States housing bubble

was a real-estate bubble affecting over half of
the U.S. states. It was the impetus for the
subprime mortgage crisis. Housing prices
peaked in early 2006, started to decline in
2006 and 2007, and reached new lows in
2011.[2] On December 30, 2008, the Case–
Shiller home price index reported the largest
price drop in its history.[3] The credit crisis
resulting from the bursting of the housing
Cost of housing by State
bubble is an important cause of the Great
Recession in the United States.[4]

Increased foreclosure rates in 2006–2007

among U.S. homeowners led to a crisis in
August 2008 for the subprime, Alt-A,
collateralized debt obligation (CDO),
mortgage, credit, hedge fund, and foreign bank
markets.[5] In October 2007, Henry Paulson,
the U.S. Secretary of the Treasury, called the
bursting housing bubble "the most significant
risk to our economy".[6] Median housing price by metro area

Any collapse of the U.S. housing bubble has a

direct impact not only on home valuations, but mortgage markets, home builders, real estate, home supply
retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the
risk of a nationwide recession.[7][8][9][10] Concerns about the impact of the collapsing housing and credit
markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal
Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who
were unable to pay their mortgage debts.[11]

In 2008 alone, the United States government allocated over $900 billion (~$1.13 trillion in 2021) to special
loans and rescues related to the U.S. housing bubble. This was shared between the public sector and the
private sector. Because of the large market share of Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac) (both of which are government-
sponsored enterprises) as well as the Federal 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.[12]

Background
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.[13]

Housing bubbles may occur in local or global

real estate markets. In their late stages, they are
typically characterized by rapid increases in
the valuations of real property until
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 of negative equity—a mortgage debt
higher than the value of the property. The
underlying causes of the housing bubble are Fig. 1: Robert Shiller's plot of U.S. home prices, population,
complex. Factors include tax policy building costs, and bond yields, from Irrational Exuberance,
(exemption of housing from capital gains), 2nd ed.[1] Shiller shows that inflation-adjusted U.S. home
historically low interest rates, lax lending prices increased 0.4% per year from 1890 to 2004 and
standards, failure of regulators to intervene, 0.7% per year from 1940 to 2004, whereas U.S. census
and speculative fever.[5][7][14][15][16][17] This data from 1940 to 2004 shows that the self-assessed value
bubble may be related to the stock market or increased 2% per year.
dot-com bubble of the 1990s.[1][18][19][20][21]
This bubble roughly coincides with the real-
estate bubbles of the United Kingdom, Hong Kong, Spain,[22] Poland, Hungary and South Korea.[23][24]

While bubbles may be identifiable in progress, bubbles can be definitively measured only in hindsight after
a market correction,[25] which began in 2005–2006 for the U.S. housing market.[26][27][28][29][30][31]
Former U.S. Federal Reserve Board Chairman Alan Greenspan said "We had a bubble in housing",[32][33]
and also said in the wake of the subprime mortgage and credit crisis in 2007, "I really didn't get it until very
late in 2005 and 2006." In 2001, Alan Greenspan dropped interest rates to a low 1% in order to jump the
economy after the ".com" bubble. It was then bankers and other Wall Street firms started borrowing money
due to its inexpensiveness.[34]

The mortgage and credit crisis was 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 Mac CEO
Richard Syron concluded, "We had a bubble",[35] and concurred with Yale economist Robert Shiller's
warning that home prices appear overvalued and that the correction could last years, with trillions of dollars
of home value being lost.[35] Greenspan warned of "large double digit declines" in home values "larger
than most people expect".[33]

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
the Great Depression".[8] The impact of booming home valuations on the U.S. economy since the 2001–
2002 recession was an important factor in the recovery, because a large component of consumer spending
was 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.[7]

Timeline

Housing prices to personal income ratios by metro

area
Los Angeles
San Jose
Denver
New York
Seattle
Boston
United States average
Dallas
Chicago
Detroit

Identification
Although an economic bubble is difficult to identify
except in hindsight, numerous economic and cultural
factors led several economists (especially in late 2004
and early 2005) to argue that a housing bubble existed
in the U.S.[1][25][37][38][39][40][41][42] Dean Baker
identified the bubble in August 2002, thereafter
repeatedly warning of its nature and depth, and the
political reasons it was being ignored.[43][44] Prior to
that, Robert Prechter wrote about it extensively as did The median and average sales prices of new
Professor Shiller in his original publication of homes sold in the United States between 1963 and
Irrational Exuberance in the year 2000. 2010[36]

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).[45]
Many contested any suggestion that there could be a housing bubble, particularly at its peak from 2004 to
2006,[46] with some rejecting the "house bubble" label in 2008.[47] Claims that there was no warning of the
crisis were further repudiated in an August 2008 article in The New York Times, which reported that in mid-
2004 Richard F. Syron, the CEO of Freddie Mac, received a memo from David Andrukonis, the company's
former chief 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 and reputational risk to 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 the
warnings.

Other cautions came as early as 2001, when the late Federal Reserve governor Edward Gramlich warned
of the risks posed by subprime mortgages.[49] In September 2003, at a hearing of the House Financial
Services Committee, Congressman Ron Paul identified 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] Reuters reported in October 2007 that a Merrill
Lynch analyst too had warned in 2006 that companies could suffer from their subprime investments.

The Economist magazine 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 that froth "was a euphemism for a bubble".[33] 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]

Throughout the bubble period there was little if any mention of the fact that housing in many areas was
(and still is) selling for well above replacement cost.

On the basis of 2006 market data that were indicating a marked decline, including lower sales, rising
inventories, falling median prices and increased foreclosure rates, some economists have concluded that the
correction in the U.S. housing market began in 2006.[9][53] A May 2006 Fortune magazine 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."[27]

The chief economist of Freddie Mac and the director of Joint Center for Housing Studies (JCHS) denied
the existence of a national housing bubble and expressed doubt that any significant decline in home prices
was possible, citing consistently rising prices since the Great Depression, an anticipated increased demand
from the Baby Boom generation, and healthy levels of employment.[54][55][56] However, some have
suggested that the funding received by JCHS from the real estate industry may have affected their
judgment.[57] David Lereah, former chief economist of the National 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]

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". Following reports of rapid sales declines and price
depreciation in August 2006,[59][60] 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'."[30]

National home sales and prices both fell dramatically in March 2007 — the steepest plunge since the 1989
Savings and Loan crisis. According to NAR data, 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.[31]

John A. Kilpatrick from Greenfield Advisors was cited by Bloomberg News on 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."[61]

The US Senate Banking Committee held 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 the collapse of the subprime mortgage industry in March
2007, Senator Chris Dodd, Chairman of the Banking Committee held 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.[17] In addition, Democratic
senators such as Senator Charles Schumer of New York were already proposing a federal government
bailout of subprime borrowers in order to save homeowners from losing their residences.[17]

Causes

Extent
Home price appreciation has been non-uniform to such
an extent that some economists, including former Fed
Chairman Alan Greenspan, have argued that United
States was not experiencing a nationwide housing
bubble per se, but a number of local bubbles.[62]
However, in 2007 Greenspan admitted that there was
in fact a bubble in the U.S. housing market, and that
"all the froth bubbles add up to an aggregate
bubble".[33]

Despite greatly relaxed lending standards and low Inflation-adjusted housing prices in the United
interest rates, many regions of the country saw very States by state, 1998–2006
little price appreciation during the "bubble period".
Out of 20 largest metropolitan areas tracked by the
S&P/Case-Shiller house price index, six (Dallas, Cleveland, Detroit, Denver, Atlanta, and Charlotte) saw
less than 10% price growth in inflation-adjusted terms in 2001–2006.[63] 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[64] 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[65] and Cleveland,[66] 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.[67]

Side effects
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.

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.[68] The largest home
builders, such as D. R. Horton, Housing starts in the United States, 1959–2021
PulteGroup, and Lennar, improved Single family home
operations significantly. D. R. Multifamily residential
Horton's stock went from $3 in 2-4 unit residential
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.[69][70][71]
Mortgage equity withdrawals – primarily home equity loans and cash 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.[72]
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-scale
recession in the U.S. economy following the dot-com bust and offshoring to 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.[73]
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 of
exurbs in some regions. The population of Riverside County, California almost doubled from
1,170,413 in 1990 to 2,026,803 in 2006, due to its relative proximity to San Diego and Los
 Angeles. On the East Coast, Loudoun County, Virginia, near Washington, D.C., saw its
population triple between 1990 and 2006.[74]
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.[13] The Wisconsin Business School publishes an on line
database with building cost and land values for 46 U.S. metro areas.[13] 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.

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 high foreclosure rates.[64] 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.[75] In March
2008, Thomson Financial reported that the "Chicago Federal Reserve Bank's National Activity Index for
February sent a signal that a recession [had] probably begun".[76]

The share prices of Fannie Mae and Freddie Mac plummeted in 2008 as investors worried that they lacked
sufficient capital to cover the losses on their $5 (~$6.27 trillion in 2021) trillion portfolio of loans and loan
guarantees.[77] 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.[78]

Housing market correction

Basing their statements on historic U.S. housing
valuation trends,[1][80] 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,[26][81][82][83][84][85] 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".[86][87] Chief
economist Mark Zandi of the economic research firm
Moody's Economy.com predicted a "crash" of
double-digit depreciation in some U.S. cities by
2007–2009.[5][88][89] In a paper he presented to a
Federal Reserve Board economic symposium in
August 2007, Yale University economist Robert
Shiller warned, "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."[90]

To better understand how the mortgage crisis played

out, a 2012 report from the University of Michigan
analyzed 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% Comparison of the percentage change in the Case-
to 4.6% of families. On the other hand, family's Shiller Home Price Index for the housing
financial liquidity has decreased: "As of 2009, 18.5% corrections in the periods beginning in 2005 (red)
of families had no liquid assets, and by 2011 this had and the 1980s–1990s (blue), comparing monthly
grown to 23.4% of families."[91][92] CSI values with the peak values immediately prior
to the first month of decline all the way through the
By mid-2016, the national housing price index was downturn and the full recovery of home prices.
"about 1 percent shy of that 2006 bubble peak" in
nominal terms[93] but 20% below in inflation adjusted
terms.[94]

NAR chief economist David

Subprime mortgage industry Lereah's explanation, "What
collapse Happened", from the 2006 NAR
Leadership Conference[79]
In March 2007, the United States' subprime mortgage
Boom ended in August 2005
industry collapsed due to higher-than-expected home
foreclosure rates (no verifying source), with more Mortgage rates rose almost
than 25 subprime lenders declaring bankruptcy, one point
announcing significant losses, or putting themselves Affordability conditions
up for sale.[95] The stock of the country's largest deteriorated
subprime lender, New Century Financial, plunged Speculative investors pulled
84% amid Justice Department investigations, before out
ultimately filing for Chapter 11 bankruptcy on April Homebuyer confidence
2, 2007, with liabilities exceeding $100 million plunged
(~$128 million in 2021).[96] Resort buyers went to
sidelines
The manager of the world's largest bond fund, Trade-up buyers went to
PIMCO, warned in June 2007 that the subprime sidelines
mortgage crisis was not an isolated event and would First-time buyers priced out of
eventually take a toll on the economy and ultimately market
have an impact in the form of impaired home
prices.[97] Bill Gross, a "most reputable financial
guru",[10] sarcastically and ominously criticized the
credit ratings of the mortgage-based CDOs now facing
collapse:

AAA? You were wooed, Mr. Moody's

and 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
Bank run on the U.K.'s Northern Rock Bank by
waste ... This problem [ultimately] resides
customers queuing to withdraw savings in a panic
in America's heartland, with millions and
related to the U.S. subprime crisis
millions of overpriced homes.[10]

Business Week has featured predictions by financial analysts that the subprime mortgage market meltdown
would result in earnings reductions for large Wall Street investment banks trading in mortgage-backed
securities, especially Bear Stearns, Lehman Brothers, Goldman Sachs, Merrill Lynch, and Morgan
Stanley.[95] The solvency of two troubled hedge funds managed by Bear Stearns was imperiled in June
2007 after Merrill Lynch sold 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.[98]

H&R Block reported 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.[99] 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
Stearns pledged up to U.S. $3.2 billion (~$4.09 billion in 2021) in loans on June 22, 2007, to bail out one
of its hedge funds that was collapsing because of bad bets on subprime mortgages.[100]

Peter Schiff, president of Euro Pacific Capital, argued that if the bonds in the Bear Stearns funds 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."[101] The New York Times report 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."[100]

On August 9, 2007, BNP Paribas announced that it could not fairly value the underlying assets in three
funds because of its exposure to U.S. subprime mortgage lending markets.[102] Faced with potentially
massive (though unquantifiable) exposure, the European 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.[103] 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. 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 Bank Ben Bernanke decided to lower the discount window rate, 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, Senator Chris Dodd, chairman of the Banking 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.[17] In addition, Democratic senators such as Senator
Charles Schumer of 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 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 a moral
hazard, and worsen the speculation problem in the housing market.

Lou Ranieri of Salomon Brothers, creator of the mortgage-backed securities market 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.[104]

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.[105] 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 the economic crisis of 2008.[106][107] On October 15, 2008, Anthony Faiola, Ellen
Nakashima and Jill Drew wrote a lengthy article in The Washington Post titled, "What Went Wrong".[108]
In their investigation, the authors claim that Greenspan vehemently opposed any regulation of financial
instruments known as derivatives. They further claim that Greenspan actively sought to undermine the
office of the Commodity Futures Trading Commission, specifically under the leadership of Brooksley E.
Born, when the Commission sought to initiate the regulation of derivatives. Ultimately, it was the collapse
of a specific kind of derivative, the mortgage-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."[34]

On September 13, 2007, the British bank Northern Rock applied to the Bank of England for emergency
funds because of liquidity problems related to the subprime crisis.[109] This precipitated a bank run at
Northern Rock branches across the UK by concerned customers who took out "an estimated £2bn
withdrawn in just three days".[110]

See also
2000s commodities boom
2010 United States foreclosure crisis
Financial crisis of 2007–08
Great Recession
Mortgage Electronic Registration Systems
Synthetic CDO
 Real estate trend

Notes
1. Shiller, Robert (2005). Irrational Exuberance (2d ed.). Princeton University Press. ISBN 978-
0-691-12335-6.
2. "S&P CoreLogic Case-Shiller Home Price Indices - S&P Dow Jones Indices" (https://web.ar
chive.org/web/20130522153130/http://www.standardandpoors.com/indices/sp-case-shiller-h
ome-price-indices/en/us/?indexId=spusa-cashpidff--p-us----). standardandpoors.com.
Archived from the original (http://www.standardandpoors.com/indices/sp-case-shiller-home-
price-indices/en/us/?indexId=spusa-cashpidff--p-us----) on May 22, 2013. Retrieved
October 5, 2017.
3. Mantell, Ruth. "Home prices off record 18% in past year, Case-Schiller says" (http://www.mar
ketwatch.com/News/Story/Story.aspx?guid={A0BC3037-386D-4810-86C7-066AF28F601
7}). marketwatch.com. Retrieved April 29, 2009.
4. Holt, Jeff. "A Summary of the Primary Causes of the Housing Bubble and the Resulting
Credit Crisis: A Non-Technical Paper" (https://web.archive.org/web/20141017015959/http://w
ww.uvu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdf) (PDF).
2009, 8, 1, 120-129. The Journal of Business Inquiry. Archived from the original (http://www.u
vu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdf) (PDF) on
October 17, 2014. Retrieved February 15, 2013.
5. "In Washington, big business and big money are writing the rules on trade ..." (https://www.p
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530A3CD714D3%7D). 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."
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SB111905372884363176.html). 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. Tulipmania reigns." 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.
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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."
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Havens".

Fortune magazine 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

San Francisco / Oakland Houston
Virginia

Phoenix Seattle Kansas City

Sacramento Omaha

San Diego Pittsburgh

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Inventory of houses for sale in

Phoenix, AZ (http://www.arizonali
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March 2006. As of March 10,
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number of flawed arguments and misperception that are being peddled around. You will
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Condominium Price Appreciation (percentages) in

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everything's going to turn back to pumpkins and mice. But you look around and say, 'one
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there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns
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Further reading
Books and book chapters
June Fletcher (2005), House Poor: Pumped Up Prices, Rising Rates, and Mortgages on
Steroid – How to Survive the Coming Housing Crisis, New York: Collins. ISBN 0-06-
087322-1.
Fred E. Foldvary (2007), The Depression of 2008, Berkeley: The Gutenberg Press. ISBN 0-
9603872-0-X.
Koller, Cynthia A. (2012). "White Collar Crime in Housing: Mortgage Fraud in the United
States." El Paso, TX: LFB Scholarly. ISBN 1593325347. ISBN 978-1593325343
Patterson, Laura A., & Koller, Cynthia A. Koller (2011). "Diffusion of Fraud Through
Subprime Lending: The Perfect Storm." In Mathieu Deflem (ed.) Economic Crisis and Crime
(Sociology of Crime Law and Deviance, Volume 16), Emerald Group Publishing Limited,
pp. 25–45.
John R. Talbott (2006). Sell Now!: The End of the Housing Bubble, New York: St. Martin's
Griffin. ISBN 0-312-35788-5.
John R. Talbott (2003). The Coming Crash in the Housing Market, New York: McGraw-Hill.
ISBN 0-07-142220-X.
Elizabeth Warren and Amelia Warren Tyagi (2003). The Two-Income Trap: Why Middle-
Class Mothers and Fathers Are Going Broke, New York: Basic Books. ISBN 0-465-09082-6.

Articles
"Hear that hissing sound?" (http://www.economist.com/finance/PrinterFriendly.cfm?story_id=
5283797). The Economist. December 8, 2005.
"After the fall" (http://www.economist.com/opinion/displayStory.cfm?story_id=4079458). The
Economist. June 16, 2005.
"In come the waves" (http://www.economist.com/opinion/displaystory.cfm?story_id=407902
7). The Economist. June 16, 2005.
"Will the walls come falling down?" (http://www.economist.com/agenda/displayStory.cfm?sto
ry_id=3886356). The Economist. April 20, 2005.
"Still want to buy?" (http://www.economist.com/finance/displayStory.cfm?story_id=3722894).
The Economist. May 3, 2005.
"The American economy: A phoney recovery" (http://www.economist.com/finance/displaySto
ry.cfm?story_id=2461875). The Economist. February 26, 2004.
"House of cards" (http://www.economist.com/displayStory.cfm?Story_id=1794873). The
Economist. May 29, 2003.
"Going through the roof" (http://www.economist.com/opinion/displaystory.cfm?story_id=1057
057). The Economist. May 28, 2002.
Fackler, Martin (December 25, 2005). "Take It From Japan: Bubbles Hurt" (https://www.nytim
es.com/2005/12/25/business/yourmoney/25japan.html). The New York Times. Retrieved
May 26, 2010.
June Fletcher (February 10, 2006). "Is the Party Really Over For the Housing Boom?" (http://
www.realestatejournal.com/columnists/housetalk/20060210-fletcher.html). The Wall Street
Journal.
Dean Baker (July 2005). "The Housing Bubble Fact Sheet" (https://web.archive.org/web/200
70203014441/http://www.cepr.net/publications/housing_fact_2005_07.pdf) (PDF). Center for
Economic and Policy Research. Archived from the original (http://www.cepr.net/publications/
housing_fact_2005_07.pdf) (PDF) on February 3, 2007.
Fred E. Foldvary (1997), "The Business Cycle: A Georgist-Austrian Synthesis (http://www.fol
dvary.net/works/geoaus.html) Archived (https://web.archive.org/web/20070828080101/http://
 www.foldvary.net/works/geoaus.html) August 28, 2007, at the Wayback Machine," American
Journal of Economics and Sociology 56(4):521–41, October.
N. Gregory Mankiw and David N. Weil (1989). "The baby boom, the baby bust, and the
housing market (https://web.archive.org/web/20071013113333/http://www.sciencedirect.co
m/science?_ob=ArticleURL&_udi=B6V89-458X25J-5&_coverDate=05%2F31%2F1989&_al
id=419372230&_rdoc=1&_fmt=&_orig=search&_qd=1&_cdi=5865&_sort=d&view=c&_acct=
C000057242&_version=1&_urlVersion=0&_userid=2425064&md5=ebb68aba7d479686907
2535dc3368f64)", Regional Science and Urban Economics, Vol.19, No.2, May 1989,
pp. 235–258.
Paul Krugman (August 25, 2006). "Housing Gets Ugly" (https://query.nytimes.com/gst/fullpag
e.html?res=9C05E1D6133EF936A1575BC0A9609C8B63). The New York Times.
Robert J. Samuelson (October 11, 2006). "Home Is Where the Worry Is" (https://www.washin
gtonpost.com/wp-dyn/content/article/2006/10/10/AR2006101001284.html). The Washington
Post.
"America's Rental Housing: The Key to a Balanced National Policy" (https://web.archive.org/
web/20110719095136/http://www.jchs.harvard.edu/publications/rental/rh08_americas_renta
l_housing/index.html), Joint Center for Housing Studies, Harvard University, 2007
"From Bubble to Depression?" (https://www.wsj.com/articles/SB123897612802791281),
Steven Gjerstad and Vernon L. Smith, Wall Street Journal, April 6, 2009, includes charts
"Mired in Disequilibrium" (http://www.newsweek.com/2011/01/23/mired-in-disequilibrium.ht
ml), Vernon L. Smith, Newsweek, January 24, 2011

External links
Center for Economic and Policy Research (https://web.archive.org/web/20090622153650/htt
p://www.cepr.net/index.php/component/option,com_issues/task,view_issue/issue,11/Itemid,2
2/) – CEPR regularly releases reports on the U.S. Housing Bubble.

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