2000s United States housing bubble

Economic bubble December 2025 April 2018 thumb|350px|Median cost to purchase a home by U.S. state thumb|350px|Median cost to purchase a home by U.S. metro area 350px|right|thumb|Fig. 1: Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields, from Irrational Exuberance, 2nd ed. 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. During the 2000s, United States housing prices experienced a sharp run up and subsequent collapse affecting over half of the U.S. states. In many regions, a real estate bubble was the impetus for the subprime mortgage crisis. Housing prices, which peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011.http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us---- S&P CoreLogic Case-Shiller Home Price Indices - S&P Dow Jones Indices Standard & Poors October 5, 2017 May 22, 2013 https://web.archive.org/web/20130522153130/http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us---- dead On December 30, 2008, the Case–Shiller home price index reported the largest price drop in its history.https://www.marketwatch.com/story/home-prices-off-record-18-in-past-year-case-shiller-says Home prices off record 18% in past year, Case-Schiller says MarketWatch December 30, 2008 February 19, 2025 Mantell Ruth https://web.archive.org/web/20101011123628/http://www.marketwatch.com:80/story/home-prices-off-record-18-in-past-year-case-shiller-says October 11, 2010 live The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States.Holt Jeff A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper http://www.uvu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdf 2009, 8, 1, 120-129 The Journal of Business Inquiry February 15, 2013 https://web.archive.org/web/20141017015959/http://www.uvu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdf October 17, 2014 dead mdy-all 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.Bill Moyers Journal In Washington, big business and big money are writing the rules on trade ... https://www.pbs.org/moyers/journal/06292007/transcript5.html June 29, 2007 PBS February 19, 2025 https://web.archive.org/web/20070704002021/http://www.pbs.org/moyers/journal/06292007/transcript5.html July 4, 2007 live In October 2007, Henry Paulson, the U.S. secretary of the treasury, called the bursting housing bubble "the most significant risk to our economy".Housing woes take bigger toll on economy than expected: Paulson October 17, 2007 AFP http://afp.google.com/article/ALeqM5hWSjWmGJ4YXTh3PM5kOC7csTT48g dead https://web.archive.org/web/20100918181527/http://afp.google.com/article/ALeqM5hWSjWmGJ4YXTh3PM5kOC7csTT48g September 18, 2010 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 Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. 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.Bush Moves to Aid Homeowners The Wall Street Journal August 31, 2007 https://www.wsj.com/articles/SB118851742988914064 Deborah Solomon A4 https://web.archive.org/web/20070902205900/http://online.wsj.com:80/article/SB118851742988914064.html?mod=fpa_mostpop September 2, 2007 dead subscription In 2008 alone, the United States government allocated over $900 billion (~$US-GDP 900000000000 2008 in US-GDP) 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.Lawder David Reuters September 16, 2008 https://www.reuters.com/article/idUKN16126320080917 FACTBOX – U.S. government bailout tally tops 504 billion pounds February 19, 2025 https://web.archive.org/web/20090416182935/http://www.reuters.com/article/idUKN16126320080917 April 16, 2009 live Background Land prices contributed much more to the price increases than did structures. 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 complex. Factors include tax policy (exemption of housing from capital gains), historically low interest rates, lax lending standards, failure of regulators to intervene, and speculative fever.https://archive.nytimes.com/www.nytimes.com/2008/12/19/business/19tax.html Tax Break May Have Helped Cause Housing Bubble Vikas Bajaj David Leonhardt The New York Times December 18, 2008 February 15, 2025Evans-Pritchard Ambrose No mercy now, no bail-out later The Daily Telegraph March 23, 2006 https://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/03/23/ccfed23.xml&menuId=242&sSheet=/money/2006/03/23/ixcoms.html https://web.archive.org/web/20060615024509/http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/03/23/ccfed23.xml&menuId=242&sSheet=/money/2006/03/23/ixcoms.html dead June 15, 2006 [T]he American housing boom is now the mother of all bubbles—in sheer volume, if not in degrees of speculative madness. London 2010-05-26Lowering the Boom? Speculators Gone Mild March 15, 2006 Fortune https://money.cnn.com/magazines/fortune/fortune_archive/2006/03/20/8371785/index.htm America was awash in a stark, raving frenzy that looked every bit as crazy as dot-com stocks. Eugenia Levenson https://web.archive.org/web/20060907042139/https://money.cnn.com/magazines/fortune/fortune_archive/2006/03/20/8371785/index.htm September 7, 2006 dead February 19, 2025 This bubble may be related to the stock market or dot-com bubble of the 1990s.http://www.federalreserve.gov/fomc/fundsrate.htm Open Market Operations Federal Reserve February 19, 2025 Shiller Robert June 20, 2005 The Bubble's New Home https://www.barrons.com/articles/SB111905372884363176 subscription dead https://archive.today/20221224150742/https://www.barrons.com/amp/articles/SB111905372884363176 December 24, 2022 February 19, 2025 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: right|thumb|Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005Coy Peter Miller Rich Is A Housing Bubble About To Burst? BusinessWeek July 19, 2004 http://www.businessweek.com/magazine/content/04_29/b3892064_mz011.htm February 22, 2025 dead https://web.archive.org/web/20040722080040/http://www.businessweek.com/magazine/content/04_29/b3892064_mz011.htm July 22, 2004 This bubble roughly coincides with similar ones in the United Kingdom, Hong Kong, Spain,http://www.eumed.net/ce/2011a/jfbr.htm DETECCIÓN DE BURBUJAS INMOBILIARIAS: EL CASO ESPAÑOL eumed.net October 5, 2017 Poland, Hungary and South Korea.http://lvrg.org.au/blog/2009/06/from-subprime-to-terrigenous-recession.html From the subprime to the terrigenous: Recession begins at home G.R. Putland Land Values Research Group June 1, 2009https://www.economist.com/europe/2009/04/23/not-like-the-neighbours Not like the neighbours The Economist April 23, 2009 February 19, 2025 https://web.archive.org/web/20110128180309/http://www.economist.com/node/13527532 January 28, 2011 dead subscription While bubbles may be identifiable in progress, bubbles can be definitively measured only in hindsight after a market correction,A prediction of a correction in the housing market, possibly after the "fall" of 2005, is implied by The Economist magazine'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 https://www.economist.com/leaders/2005/06/16/after-the-fall February 19, 2025 https://web.archive.org/web/20051210200132/http://www.economist.com/printedition/displaystory.cfm?Story_ID=4079458 December 10, 2005 dead subscription which began in 2005–2006 for the U.S. housing market.Blanton Kimberly Adjustable-rate loans come home to roost http://archive.boston.com/business/articles/2006/01/11/adjustable_rate_loans_come_home_to_roost/ The Boston Globe January 11, 2006 February 20, 2025 https://web.archive.org/web/20070306215652/http://www.boston.com/business/articles/2006/01/11/adjustable_rate_loans_come_home_to_roost/?page=full March 6, 2007 live Over 14,000 Phoenix For-Sale Homes Vacant March 10, 2006 http://thehousingbubbleblog.com/?p=256 The Housing Bubble Blog November 5, 2018 September 9, 2006 https://web.archive.org/web/20181105230131/http://thehousingbubbleblog.com/?p=256 dead thumb|upright=0.9|right|Inventory of houses for sale in Phoenix, AZ from 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.)https://www.washingtonpost.com/wp-dyn/content/article/2007/04/24/AR2007042400627.html Existing-Home Sales Fall Steeply Nancy Trejos The Washington Post April 24, 2007 February 19, 2025 https://web.archive.org/web/20080923194422/http://www.washingtonpost.com/wp-dyn/content/article/2007/04/24/AR2007042400627.html September 23, 2008 dead Former U.S. Federal Reserve Board Chairman Alan Greenspan said "We had a bubble in housing",Greenspan Examines Federal Reserve, Mortgage Crunch PBS September 18, 2007 The NewsHour with Jim Lehrer https://www.pbs.org/newshour/show/greenspan-examines-federal-reserve-mortgage-crunch https://web.archive.org/web/20080110202351/http://www.pbs.org/newshour/bb/business/july-dec07/greenspan_09-18.html January 10, 2008 dead February 19, 2025Greenspan alert on US house prices September 17, 2007 Financial Times https://www.ft.com/content/31207860-647f-11dc-90ea-0000779fd2ac https://web.archive.org/web/20070921031032/http://www.ft.com/cms/s/0/31207860-647f-11dc-90ea-0000779fd2ac.html September 21, 2007 subscription dead February 19, 2025 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.".Greenspan says didn't see subprime storm brewing September 14, 2007 Reuters Mark Felsenthal https://www.reuters.com/article/bankingfinancial-SP/idUSL1426151220070914?sp=true February 19, 2025 https://web.archive.org/web/20080514180742/https://www.reuters.com/article/bankingfinancial-SP/idUSL1426151220070914?sp=true May 14, 2008 dead 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. Greenspan warned of "large double digit declines" in home values "larger than most people expect". Freddie Mac CEO Richard Syron agreed with Greenspan's acknowledging a housing bubble 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.https://business.cch.com/images/banner/subprime.pdf The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown Bianco Katalina M. CCH 2008 3 February 19, 2025 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". Top Lender Sees Mortgage Woes for 'Good' Risks The New York Times July 25, 2007 https://archive.nytimes.com/www.nytimes.com/2007/07/25/business/25lend.html Vikas Bajaj February 17, 2025 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.Andrew Laperriere Housing Bubble Trouble: Have we been living beyond our means? The Weekly Standard April 10, 2006 http://www.weeklystandard.com/Content/Public/Articles/000/000/012/053ajgwr.asp https://web.archive.org/web/20060408010852/http://www.weeklystandard.com/Content/Public/Articles/000/000/012/053ajgwr.asp dead April 8, 2006 Timeline Timeline of the 2000s United States housing bubble thumb|center|300px|Housing prices to personal income ratios by metro area #00AB8E solid 3px Los Angeles #EE220C solid 3px San Jose #1DB100 solid 3px Denver #FFD932 solid 3px New York #00A2FF solid 3px Seattle #970E53 solid 3px Boston #929292 United States average #5E5E5E #FF42A1 solid 3px Dallas #B51700 solid 3px Chicago #73FDEA solid 3px Detroit Contemporary discussion of the housing price boom thumb|upright=1.35|The median and average sales prices of new homes sold in the United States between 1963 and 2010https://www.census.gov/const/uspriceann.pdf Median and Average Sales Prices of New Homes Sold in United States U.S. Census Bureau February 19, 2025 https://web.archive.org/web/20140201142446/https://www.census.gov/const/uspriceann.pdf February 1, 2014 dead 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 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.Shiller Robert Irrational Exuberance 2d 2005 Princeton University Press 978-0-691-12335-6 Irrational Exuberance (book) Hudson Michael The New Road to Serfdom https://harpers.org/archive/2006/05/the-new-road-to-serfdom/ subscription Harper's May 2006 312 1872 39–46 February 19, 2025 Leamer Ed Is economy headed to a soft landing? August 23, 2006 USA Today https://www.usatoday.com/money/economy/2006-08-23-recession-usat_x.htm This soft-landing scenario is a fantasy ... Anything housing-related is going to feel like a recession, almost like a depression. https://web.archive.org/web/20070422030858/https://www.usatoday.com/money/economy/2006-08-23-recession-usat_x.htm April 22, 2007 dead February 19, 2025Hamilton Jim New home sales continue to fall August 25, 2006 Econbrowser http://www.econbrowser.com/archives/2006/08/new_home_sales.html No question about it, the housing downturn is here now, and it's big. dead https://web.archive.org/web/20060901175332/http://www.econbrowser.com/archives/2006/08/new_home_sales.html September 1, 2006 Roubini Nouriel Eight Market Spins About Housing by Perma-Bull Spin-Doctors ... And the Reality of the Coming Ugliest Housing Bust Ever ... August 26, 2006 RGE Monitor http://www.rgemonitor.com/blog/roubini/143257 A lot of spin is being furiously spinned 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 TV programs. So, be prepared to understand this misinformation, myths and spins. https://web.archive.org/web/20060903114146/http://www.rgemonitor.com/blog/roubini/143257 September 3, 2006 dead Dean Baker identified the bubble in August 2002, thereafter repeatedly warning of its nature and depth, and the political reasons it was being ignored.Baker Dean The Run-Up in Home Prices: Is it Real or Is it Another Bubble? http://www.cepr.net/index.php/publications/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble https://wayback.archive-it.org/all/20090423085253/http://www.cepr.net/index.php/publications/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble/ dead 2009-04-23 Center for Economic and Policy Research June 12, 2011 August 2002Baker Dean Bush's House of Cards The Nation August 9, 2004 http://www.thenation.com/doc/20040816/baker https://web.archive.org/web/20060530202103/http://www.thenation.com/doc/20040816/baker May 30, 2006 February 19, 2025 dead Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his original publication of Irrational Exuberance in the year 2000. Peter Schiff also called the bubble early on and was vocal about it on television and wrote a book detailing his predictions of the fallout.Folkenflik David December 4, 2008 The Man Who Predicted The Economic Meltdown NPR https://www.npr.org/2008/12/04/97801606/the-man-who-predicted-the-economic-meltdown February 19, 2025 https://web.archive.org/web/20081207014831/http://www.npr.org/templates/story/story.php?storyId=97801606 December 7, 2008 live An August 2008 article in The New York Times 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".Duhigg Charles August 5, 2008 At Freddie Mac, Chief Discarded Warning Signs The New York Times https://archive.nytimes.com/www.nytimes.com/2008/08/05/business/05freddie.html February 17, 2025 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.Ip Greg June 9, 2007 Did Greenspan Add to Subprime Woes? Wall Street Journal https://www.wsj.com/articles/SB118134111823129555 February 17, 2025 subscription https://web.archive.org/web/20070613151429/http://online.wsj.com:80/article/SB118134111823129555.html June 13, 2007 dead 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."Fannie Mae and Freddie Mac Subsidies Distort the http://paul.house.gov/index.php?option%3Dcom_content%26task%3Dview%26id%3D258%26Itemid%3D60 dead https://web.archive.org/web/20120521211720/http://paul.house.gov/index.php?option=com_content&task=view&id=258&Itemid=60 May 21, 2012 May 22, 2012 The Economist magazine stated, "The worldwide rise in house prices is the biggest bubble in history",June 16, 2005 In come the waves The Economist https://www.economist.com/special-report/2005/06/16/in-come-the-waves The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops. February 19, 2025 https://web.archive.org/web/20050726075258/http://www.economist.com/opinion/displaystory.cfm?story_id=4079027 July 26, 2005 dead subscription 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". 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".President Highlights Importance of Small Business in Economic Growth The White House January 19, 2006 https://georgewbush-whitehouse.archives.gov/news/releases/2006/01/20060119-2.html [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.' Predictions of no bubble In 2008, Alex Tabarrok, a Canadian-American economist, rejected the notion that there was a housing bubble.Krugman Paul https://archive.nytimes.com/krugman.blogs.nytimes.com/2010/01/12/bubble-denial-2/ Bubble Denial The New York Times January 12, 2010 February 17, 2025Cites "Was there a Housing Bubble?" by Alex Tabarrok, February 13, 2008 as rejecting the label "bubble". The chief economist of Freddie Mac and the director of Joint 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 the Great Depression, an anticipated increased demand from the Baby Boom generation, and healthy levels of employment.Kim June June 22, 2005 Housing Bubble—or Bunk? BusinessWeek http://www.businessweek.com/bwdaily/dnflash/jun2005/nf20050622_9404_db008.htm dead https://web.archive.org/web/20050701003125/http://www.businessweek.com/bwdaily/dnflash/jun2005/nf20050622_9404_db008.htm July 1, 2005 February 22, 20252006 The State of the Nation's Housing 2006 Harvard University, Joint Center for Housing Studies http://www.jchs.harvard.edu/publications/markets/son2006/son2006.pdf dead https://web.archive.org/web/20061013112326/http://www.jchs.harvard.edu/publications/markets/son2006/son2006.pdf October 13, 2006Retsinas Nicolas September 24, 2006 The housing wail The Providence Journal http://www.jchs.harvard.edu/media/housing_wail.html dead February 19, 2025 https://web.archive.org/web/20070905102512/http://www.jchs.harvard.edu/media/housing_wail.html September 5, 2007 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. mdy-all Harvard Joint Center for Housing Studies 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".Lereah David August 2005 Anti-Bubble Reports National Association of Realtors http://www.realtor.org/research.nsf/pages/anti-bubblereports https://web.archive.org/web/20051126044138/http://www.realtor.org/research.nsf/pages/anti-bubblereports November 26, 2005 Price correction 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,Mian Atif Sufi Amir Trebbi Francesco 2015 Foreclosures, House Prices, and the Real Economy https://www.jstor.org/stable/43611145 The Journal of Finance 70 6 2587–2633 10.1111/jofi.12310 43611145 0022-1082 some economists have concluded that the correction in the U.S. housing market began in 2006.Nutting Rex Recession will be nasty and deep, economist says August 23, 2006 MarketWatch https://www.marketwatch.com/story/coming-recession-will-be-nastier-than-2001s-economist-says This is the biggest housing slump in the last four or five decades: every housing indicator is in free fall, including now housing prices. https://web.archive.org/web/20060930190318/http://www.marketwatch.com/news/story/story.aspx?guid=%7BE18E95AF-DBFF-4EE4-ACF7-530A3CD714D3%7D September 30, 2006 dead February 20, 2025The Slow Motion Train Wreck Baker Dean The American Prospect August 2, 2006 http://www.prospect.org/deanbaker/2006/08/the_slow_motion_train_wreck.html https://web.archive.org/web/20101205221408/http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=08&year=2006&base_name=the_slow_motion_train_wreck dead December 5, 2010 February 20, 2025 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."Welcome to the Dead Zone Fortune May 5, 2006 https://money.cnn.com/2006/05/03/news/economy/realestateguide_fortune/ Shawn Tully February 20, 2025 https://web.archive.org/web/20060617223334/https://money.cnn.com/2006/05/03/news/economy/realestateguide_fortune/ June 17, 2006 dead This article classified several U.S. real-estate regions as "Dead Zones", "Danger Zones", and "Safe Havens". +Fortune magazine Housing Bubble "Dead Zones""Dead Zones""Danger Zones""Safe Havens"BostonChicagoClevelandLas VegasLos AngelesColumbusMiamiNew YorkDallasWashington D.C. / Northern VirginiaSan Francisco / OaklandHoustonPhoenixSeattleKansas CitySacramentoOmahaSan DiegoPittsburgh 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".Housing Bubble Prospects Q&A National Association of Realtors 2005 http://www.realtor.org/Research.nsf/Pages/Anti-BubbleQ&A https://web.archive.org/web/20051126044113/http://www.realtor.org/Research.nsf/Pages/Anti-BubbleQ&A November 26, 2005 dead February 20, 2025 Following reports of rapid sales declines and price depreciation in August 2006,Tully Shawn Getting real about the real estate bubble August 25, 2006 Fortune https://money.cnn.com/2006/08/24/real_estate/pluggedin_tully.fortune/index.htm https://web.archive.org/web/20060829203611/https://money.cnn.com/2006/08/24/real_estate/pluggedin_tully.fortune/index.htm August 29, 2006 February 20, 2025 dead Umberger Mary Housing market may be on ice, but the blame market is red hot September 10, 2006 Chicago Tribune http://www.chicagotribune.com/business/chi-0609100082sep10,1,5965765.story https://web.archive.org/web/20090113203347/http://archives.chicagotribune.com/2006/sep/10/business/chi-0609100082sep10 dead January 13, 2009 February 17, 2025 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'."Lereah David Existing home sales drop 4.1% in July, median prices drop in most regions August 24, 2005 USA Today https://www.usatoday.com/money/economy/housing/2006-08-23-july-sales_x.htm February 20, 2025 https://web.archive.org/web/20060902201229/http://www.usatoday.com/money/economy/housing/2006-08-23-july-sales_x.htm September 2, 2006 dead 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. 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."Bloomberg News U.S. Mortgages Enter Foreclosure at Record Pace Kathleen Howley June 14, 2007 https://www.bloomberg.com/apps/news?pid=20601087&sid=aLwz4ThaWzAg&refer=home https://web.archive.org/web/20070930061617/http://www.bloomberg.com/apps/news?pid=20601087&sid=aLwz4ThaWzAg&refer=home September 30, 2007 February 20, 2025 dead 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".http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=239 Calculated Risk: Assessing Non-Traditional Mortgage Products U.S. Senate Banking Committee September 20, 2006 February 20, 2025 https://web.archive.org/web/20061013200151/http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=239 October 13, 2006 dead 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.Top five US subprime lenders asked to testify-Dodd John Poirier Reuters https://www.reuters.com/article/bankingfinancial-SP/idUSN1930923820070320/ March 19, 2007 February 19, 2025 https://web.archive.org/web/20100123022307/http://www.reuters.com/article/idUSN1930923820070320 January 23, 2010 dead 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. Causes Causes of the 2000s United States housing bubble Geographic extent thumb|upright=1.35|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 former Fed Chairman Alan Greenspan, argued that United States was not experiencing a nationwide housing bubble per se, but a number of local bubbles.Associated Press https://www.usatoday.com/money/industries/energy/2005-05-20-greenspan_x.htm Greenspan: 'Local bubbles' build in housing sector May 20, 2005 USA Today February 20, 2025 https://web.archive.org/web/20070702090123/https://www.usatoday.com/money/industries/energy/2005-05-20-greenspan_x.htm July 2, 2007 dead In 2007, however, Greenspan stated that "all the froth bubbles add up to an aggregate bubble". 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 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.http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,3,1,0,0,0,0,0.html S&P/Case-Shiller Home Price Indices-historical spreadsheets https://web.archive.org/web/20070115063600/http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,3,1,0,0,0,0,0.html January 15, 2007 dead 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%. Somewhat paradoxically, as the housing bubble deflateshttps://money.cnn.com/2007/08/14/real_estate/California_cities_lead_foreclosure/index.htm CNNMoney.com August 14, 2007 California cities fill top 10 foreclosure list February 20, 2025 Les Christie https://web.archive.org/web/20070816015608/http://money.cnn.com/2007/08/14/real_estate/California_cities_lead_foreclosure/index.htm August 16, 2007 dead 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 DetroitMorrison Joanne Home prices tumble as consumer confidence sinks Reuters November 27, 2007 February 20, 2025 https://www.reuters.com/article/bondsNews/idUSN2748402720071127?sp=true https://web.archive.org/web/20080514180807/http://www.reuters.com/article/bondsNews/idUSN2748402720071127?sp=true May 14, 2008 dead and Cleveland,Cleveland: Foreclosures weigh on market November 21, 2006 USA Today Noelle Knox https://www.usatoday.com/money/economy/housing/2006-11-21-close-cleveland_x.htm February 20, 2025 https://web.archive.org/web/20070227160014/https://www.usatoday.com/money/economy/housing/2006-11-21-close-cleveland_x.htm February 27, 2007 dead 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.Lynch Sharon L. Metro U.S. Home Prices Fall on Higher Foreclosures Bloomberg News October 2, 2008 February 20, 2025 http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAaW9UAEs8Dk&refer=home https://web.archive.org/web/20131229194246/http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAaW9UAEs8Dk&refer=home December 29, 2013 dead 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. thumb|375px|Housing starts in the United States, 1959–2021 blue solid 2px Single family home green solid 2px Multifamily residential red solid 2px 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.https://www.census.gov/const/C25Ann/soldstories.pdf Number of Stories in New One-Family Houses Sold U.S. Census Bureau https://web.archive.org/web/20071202024723/http://www.census.gov/const/C25Ann/soldstories.pdf December 2, 2007 February 20, 2025 dead The largest home builders, such as D. R. Horton, PulteGroup, and Lennar, 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.https://finance.yahoo.com/quote/DHI/history/ D.R. Horton, Inc. (DHI) Stock Historical Prices & Data - Yahoo Finance finance.yahoo.comhttp://216.139.227.101/interactive/phm2006/ Pulte Corp. 2006 Annual Report dead https://web.archive.org/web/20070819040649/http://216.139.227.101/interactive/phm2006/ August 19, 2007 https://www.sec.gov/Archives/edgar/data/822416/0000950009-97-000127.txt Pulte Corp. 1996 Form 10-K – Annual report 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.http://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf Sources and Uses of Equity Extracted from Homes 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.https://mises.org/library/americas-unsustainable-boom America's Unsustainable Boom November 5, 2004 Mises Institute 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.2015 Land Prices for 46 Metro Areas http://www.lincolninst.edu/subcenters/land-values/metro-area-land-prices.asp Updated Quarterly Wisconsin School of Business & The Lincoln Institute of Land Policy January 2, 2011 July 1, 2010 https://web.archive.org/web/20100701205934/https://www.lincolninst.edu/subcenters/land-values/metro-area-land-prices.asp dead The Wisconsin Business School publishes an on line database with building cost and land values for 46 U.S. metro areas. 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. June 2018 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. 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.July 27, 2007 2008-03-24 https://www.bea.gov/newsreleases/national/gdp/2007/pdf/gdp207a.pdf Bureau of Economic Analysis GDP estimate, Q2 2007 https://web.archive.org/web/20170502000002/https://www.bea.gov/newsreleases/national/gdp/2007/pdf/gdp207a.pdf May 2, 2017 dead 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".https://www.forbes.com/markets/feeds/afx/2008/03/24/afx4806227.html Thomson Financial Chicago Fed index indicates recession has probably begun Forbes February 20, 2025 March 24, 2008 dead https://web.archive.org/web/20080514035958/http://www.forbes.com/markets/feeds/afx/2008/03/24/afx4806227.html May 14, 2008 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 $5 trillion (~$US-GDP 5000000000000 2008 in US-GDP) portfolio of loans and loan guarantees.https://archive.nytimes.com/www.nytimes.com/2008/07/12/business/12markets.html Woes at Loan Agencies and Oil-Price Spike Roil Markets Michael M. Grynbaum The New York Times July 12, 2008 February 17, 2025 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.Fannie, Freddie Delisting Signals Firms Have No Value The Wall Street Journal June 16, 2010 https://online.wsj.com/article/BT-CO-20100616-712880.html dead https://web.archive.org/web/20100621035600/http://online.wsj.com/article/BT-CO-20100616-712880.html June 21, 2010 Housing market correction United States housing market correction thumb|upright=1.35|right|Comparison of the percentage change in the Case-Shiller Home Price Index for the housing corrections in the periods beginning in 2005 (red) and the 1980s–1990s (blue), comparing monthly CSI values with the peak values immediately prior to the first month of decline all the way through the downturn and the full recovery of home pricesNAR chief economist David Lereah's explanation, "What Happened", from the 2006 NAR Leadership ConferenceLereah David Real Estate Reality Check (Powerpoint talk) National Association of Realtors Leadership Summit August 17, 2006 http://www.realtor.org/Research.nsf/files/Leadership%20Summit%20%28August%202006%29.ppt/$FILE/Leadership%20Summit%20%28August%202006%29.ppt Powerpoint August 28, 2006 https://web.archive.org/web/20060901045051/http://www.realtor.org/Research.nsf/files/Leadership%20Summit%20(August%202006).ppt/$FILE/Leadership%20Summit%20(August%202006).ppt September 1, 2006 dead mdy-all thumb|300px|right|Condominium Price Appreciation (percentages) in the south and west United States, 2002–2006. (Source: NAR.) 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,Max Sarah The bubble question CNNMoney.com July 27, 2004 https://money.cnn.com/2004/07/13/real_estate/buying_selling/risingrates/ There has never been a run up in home prices like this. https://web.archive.org/web/20040806084614/https://money.cnn.com/2004/07/13/real_estate/buying_selling/risingrates/ August 6, 2004 February 20, 2025 dead 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,The No-Money-Down Disaster August 21, 2006 Barron's https://www.barrons.com/articles/SB115594208047539900 February 20, 2025 subscription dead https://archive.today/20220820221522/https://www.barrons.com/amp/articles/SB115594208047539900 August 20, 2022 US heading for house price crash, Greenspan tells buyers The Times August 27, 2005 http://business.timesonline.co.uk/tol/business/economics/article559641.ece https://web.archive.org/web/20070309141404/http://business.timesonline.co.uk/tol/business/economics/article559641.ece dead March 9, 2007 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. London Graham Searjeant 2010-05-26Buffett: Real estate slowdown ahead CNNMoney.com May 8, 2006 https://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm 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. Jason Zweig https://web.archive.org/web/20060616091228/https://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm June 16, 2006 dead February 20, 2025Surviving a Real-Estate Slowdown The Wall Street Journal July 5, 2006 https://www.wsj.com/articles/SB115204791463597636 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. February 17, 2025 subscriptionBubble Blog August 8, 2006 Newsweek http://www.msnbc.msn.com/id/14252223/site/newsweek/ https://web.archive.org/web/20060822022500/http://www.msnbc.msn.com/id/14252223/site/newsweek/ dead August 22, 2006 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".Krugman Paul No bubble trouble? The New York Times January 2, 2006 https://www.nytimes.com/2006/01/02/opinion/no-bubble-trouble.html [T]he overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead. February 17, 2025 limited https://web.archive.org/web/20180212090652/http://www.nytimes.com/2006/01/02/opinion/no-bubble-trouble.html February 12, 2018 liveLim Paul J. Housing bubble correction could be severe U.S. News & World Report June 13, 2006 https://www.usnews.com/usnews/biztech/articles/060613/13housing_bubble.htm dead https://web.archive.org/web/20070704225821/http://www.usnews.com/usnews/biztech/articles/060613/13housing_bubble.htm July 4, 2007 February 20, 2025 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.Umberger Mary Study sees '07 'crash' in some housing October 5, 2006 Chicago Tribune http://www.chicagotribune.com/business/chi-0610050109oct05,1,1050563.story https://web.archive.org/web/20090114195132/http://archives.chicagotribune.com/2006/oct/05/business/chi-0610050109oct05 dead January 14, 2009 February 17, 2025 Moody's predicts big drop in Washington housing prices October 2, 2006 Washington Business Journal http://www.bizjournals.com/washington/stories/2006/10/02/daily45.html Jeff Clabaugh limited https://web.archive.org/web/20061024131532/http://www.bizjournals.com/washington/stories/2006/10/02/daily45.html October 24, 2006 dead 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."Finfacts Ireland 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 September 3, 2007 http://www.finfacts.com/irelandbusinessnews/publish/article_1011005.shtml 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. https://web.archive.org/web/20070927003155/http://www.finfacts.com/irelandbusinessnews/publish/article_1011005.shtml September 27, 2007 dead February 20, 2025 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% 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."http://journalistsresource.org/studies/economics/housing/mortgage-distress-financial-liquidity-us-families-handling-savings-mortgages-debts/ Mortgage Distress and Financial Liquidity: How U.S. Families are Handling Savings, Mortgages and Other Debts JournalistsResource.org, retrieved June 18, 2012 Stafford Frank Chen Bing Schoeni Robert 2012 Mortgage Distress and Financial Liquidity: How U.S. Families are Handling Savings, Mortgages and Other Debts Institute for Social Research http://jrnetsolserver.shorensteincente.netdna-cdn.com/wp-content/uploads/2012/06/US-Family-Distress-UMich.pdf dead https://web.archive.org/web/20130511132631/http://jrnetsolserver.shorensteincente.netdna-cdn.com/wp-content/uploads/2012/06/US-Family-Distress-UMich.pdf May 11, 2013 By mid-2016, the national housing price index was "about 1 percent shy of that 2006 bubble peak" in nominal termshttps://www.cnbc.com/2016/08/29/were-in-a-new-housing-bubble-why-its-less-scary-this-time.html We're in a new housing bubble: Why it's less scary this time CNBC Diana Olick August 29, 2016 February 20, 2025 https://web.archive.org/web/20160830064557/https://www.cnbc.com/2016/08/29/were-in-a-new-housing-bubble-why-its-less-scary-this-time.html August 30, 2016 live but 20% below in inflation adjusted terms.https://www.economist.com/graphic-detail/2016/08/24/american-house-prices-realty-check The Economist American house prices: realty check August 24, 2016 February 20, 2025 https://web.archive.org/web/20171224164431/https://www.economist.com/blogs/graphicdetail/2016/08/daily-chart-20 December 24, 2017 dead subscription Subprime mortgage industry collapse Subprime mortgage crisis thumb|upright=1.35|Bank run on the U.K.'s Northern Rock Bank by customers queuing to withdraw savings in a panic related to the U.S. subprime crisis In March 2007, the United States' subprime mortgage industry collapsed due to higher-than-expected home foreclosure rates (no verifying source), with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.Der Hovanesian Mara Goldstein Matthew The Mortgage Mess Spreads March 7, 2007 BusinessWeek http://www.businessweek.com/investor/content/mar2007/pi20070307_505304.htm https://web.archive.org/web/20070310164802/http://www.businessweek.com/investor/content/mar2007/pi20070307_505304.htm dead March 10, 2007 February 22, 2025 The stock of the country's largest subprime lender, New Century Financial, plunged 84% amid Justice Department investigations, before ultimately filing for Chapter 11 bankruptcy on April 2, 2007, with liabilities exceeding $100 million (~$US-GDP 100000000 2007 in US-GDP).Hunt Katherine New Century Financial files for Chapter 11 bankruptcy April 2, 2007 MarketWatch https://www.marketwatch.com/story/new-century-financial-files-for-chapter-11-bankruptcy https://web.archive.org/web/20071013114056/http://www.marketwatch.com/news/story/new-century-financial-files-chapter/story.aspx?guid={B6C60623-1D41-4209-A347-4BEA486963D2}&dist=rss&siteid=mktw October 13, 2007 dead February 22, 2025 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.https://www.reuters.com/article/world/subprime-mess-spreading-to-junk-bonds-pimco-s-gross-idUSNYG000639/ Subprime mess spreading to junk bonds-PIMCO's Gross Reuters August 9, 2007 February 22, 2025 limited Bill Gross, a "most reputable financial guru", 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 waste ... This problem [ultimately] resides in America's heartland, with millions and millions of overpriced homes.When mainstream analysts compare CDOs to 'subslime', 'toxic waste' and 'six-inch hooker heels' ... June 27, 2007 RGE Monitor http://www.rgemonitor.com/blog/roubini/202280 dead https://web.archive.org/web/20070629131731/http://www.rgemonitor.com/blog/roubini/202280 June 29, 2007 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. 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.Wilchins Dan Merrill sells off assets from Bear hedge funds June 21, 2007 Reuters https://www.reuters.com/article/world/merrill-sells-off-assets-from-bear-hedge-funds-idUSN20245025/ February 22, 2025 https://web.archive.org/web/20100121221755/http://www.reuters.com/article/idUSN2024502520070621 January 21, 2010 live limited 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.Pimlott Daniel H&R Block struck by subprime loss June 21, 2007 Financial Times https://www.ft.com/content/2485fd88-1ffa-11dc-9eb1-000b5df10621 https://web.archive.org/web/20080515144513/http://www.ft.com/cms/s/0/2485fd88-1ffa-11dc-9eb1-000b5df10621.html May 15, 2008 subscription dead February 22, 2025 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. $3.2 billion (~$US-GDP 3200000000 2007 in US-GDP) in loans on June 22, 2007, to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.$3.2 Billion Move by Bear Stearns to Rescue Fund June 23, 2007 The New York Times https://archive.nytimes.com/www.nytimes.com/2007/06/23/business/23bond.html Julie Creswell Vikas Bajaj February 17, 2025 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."CDOs would be rocked by open auction: strategist Leslie Wines June 21, 2007 MarketWatch https://www.marketwatch.com/story/bear-stearns-hedge-fund-woes-stir-worry-in-cdo-market February 22, 2025 https://web.archive.org/web/20080516111103/http://www.marketwatch.com/news/story/bear-stearns-hedge-fund-woes/story.aspx?guid=%7B11C86668-22D1-4D93-BE09-62E7B0EA6C67%7D May 16, 2008 dead 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." 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.BNP Paribas Investment Partners temporally suspends the calculation of the Net Asset Value of the following funds: Parvest Dynamic ABS, BNP Paribas ABS EURIBOR and BNP Paribas ABS EONIA August 9, 2007 https://group.bnpparibas/en/press-release/bnp-paribas-investment-partners-temporaly-suspends-calculation-net-asset-funds-parvest-dynamic-abs-bnp-paribas-abs-euribor-bnp-paribas-abs-eonia February 22, 2025 https://web.archive.org/web/20080514155728/http://www.bnpparibas.com/en/news/press-releases.asp?Code=LPOI-75W9PV May 14, 2008 live 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.Big French Bank Suspends Funds August 9, 2007 The New York Times https://archive.nytimes.com/www.nytimes.com/2007/08/10/business/worldbusiness/09cnd-eurobank.html James Kanter Julia Werdigier February 17, 2025 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.Aversa Jeannine https://www.post-gazette.com/business/businessnews/2007/08/10/Fed-pumps-another-35-billion-into-US-financial-system-today-to-stem-credit-turmoil/stories/200708100239 Fed pumps another $35 billion into US financial system today to stem credit turmoil August 10, 2007 Associated Press February 17, 2025 Pittsburgh Post-Gazette 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. 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 proposalApril 2019 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.Fleckenstein Bill Next: The real estate market freeze March 12, 2007 MSN Money http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/NextTheRealEstateMarketFreeze.aspx February 22, 2025 https://web.archive.org/web/20070813232002/http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/NextTheRealEstateMarketFreeze.aspx August 13, 2007 dead 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.Remarks by Chairman Alan Greenspan, Consumer Finance At the Federal Reserve System's Fourth Annual Community Affairs Research Conference, Washington, D.C. Alan Greenspan Federal Reserve Board April 4, 2005 http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/default.htm Alan Greenspan https://web.archive.org/web/20050410005533/http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/default.htm April 10, 2005 live February 22, 2025 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 2008 financial crisis.The Great Unraveling Stephen Roach Morgan Stanley March 16, 2007 http://www.morganstanley.com/views/gef/archive/2007/20070316-Fri.html 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. Stephen S. Roach February 22, 2025 https://web.archive.org/web/20070319210134/http://www.morganstanley.com/views/gef/archive/2007/20070316-Fri.html March 19, 2007 dead Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? Unregulated Free Market Fundamentalism Zealotry Nouriel Roubini RGE Monitor March 19, 2007 http://www.rgemonitor.com/blog/roubini/184125 dead https://web.archive.org/web/20070705213834/http://www.rgemonitor.com/blog/roubini/184125 July 5, 2007 Nouriel Roubini On October 15, 2008, The Washington Post published an in-depth article claiming that Greenspan vehemently opposed any regulation of financial instruments known as derivatives and 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.Faiola Anthony Nakashima Ellen Drew Jill http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101403343_pf.html What Went Wrong October 15, 2008 The Washington Post February 22, 2025 https://web.archive.org/web/20090930191431/http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101403343_pf.html September 30, 2009 dead Ultimately, it was the collapse of a specific kind of derivative, the mortgage-backed security, that triggered the 2008 financial crisis. Concerning the subprime mortgage mess, Greenspan later admitted that "I really didn't get it until very late in 2005 and 2006." 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.Northern Rock asks for Bank help September 13, 2007 BBC News https://news.bbc.co.uk/2/hi/business/6994099.stm 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".Hume Neil Banks remain under fire in London September 17, 2007 Financial Times https://www.ft.com/content/0475e976-64f2-11dc-bf89-0000779fd2ac https://web.archive.org/web/20070922095324/http://www.ft.com/cms/s/0/0475e976-64f2-11dc-bf89-0000779fd2ac.html September 22, 2007 subscription dead February 22, 2025 See also 2000s commodities boom 2010 United States foreclosure crisis 2008 financial crisis Great Recession Mortgage Electronic Registration Systems Synthetic CDO Real estate trends Notes 2 Further reading Books Levitin, Adam J.; Wachter, Susan M. (2020). The Great American Housing Bubble: What Went Wrong and How We Can Protect Ourselves in the Future. Harvard University Press. 978-0-674-24692-8. Elizabeth Warren and Amelia Warren Tyagi (2003). The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, New York: Basic Books. 0-465-09082-6. Articles 10.1146/annurev-financial-110217-023036 The Role of Housing and Mortgage Markets in the Financial Crisis 2018 Adelino Manuel Schoar Antoinette Severino Felipe Annual Review of Financial Economics 10 25–41 1721.1/122348 free Glaeser, Edward L.; Nathanson, Charles G. (2015). "Chapter 11 - Housing Bubbles", Handbook of Regional and Urban Economics, Elsevier, vol. 5, pp. 701–751 The Economist December 8, 2005 Hear that hissing sound? https://www.economist.com/finance-and-economics/2005/12/08/hear-that-hissing-sound https://web.archive.org/web/20060307113821/http://www.economist.com/finance/displaystory.cfm?story_id=5283797 March 7, 2006 dead subscription The Economist June 16, 2005 After the fall https://www.economist.com/leaders/2005/06/16/after-the-fall https://web.archive.org/web/20050721085214/http://www.economist.com/opinion/displayStory.cfm?story_id=4079458 July 21, 2005 dead subscription The Economist June 16, 2005 In come the waves https://www.economist.com/special-report/2005/06/16/in-come-the-waves https://web.archive.org/web/20050726075258/http://www.economist.com/opinion/displaystory.cfm?story_id=4079027 July 26, 2005 dead subscription The Economist April 20, 2005 Will the walls come falling down? https://www.economist.com/news/2005/04/20/will-the-walls-come-falling-down https://web.archive.org/web/20050723082831/http://www.economist.com/agenda/displayStory.cfm?story_id=3886356 July 23, 2005 dead subscription The Economist March 3, 2005 Still want to buy? https://www.economist.com/finance-and-economics/2005/03/03/still-want-to-buy https://web.archive.org/web/20050730084436/http://www.economist.com/finance/displayStory.cfm?story_id=3722894 July 30, 2005 dead subscription The Economist February 26, 2004 A phoney recovery https://www.economist.com/finance-and-economics/2004/02/26/a-phoney-recovery https://web.archive.org/web/20060419082438/http://www.economist.com/finance/displayStory.cfm?story_id=2461875 April 19, 2006 dead subscription The Economist May 29, 2003 House of cards https://www.economist.com/special-report/2003/05/31/house-of-cards https://web.archive.org/web/20030624041810/http://www.economist.com/displayStory.cfm?Story_id=1794873 June 24, 2003 dead subscription The Economist May 28, 2002 Going through the roof https://www.economist.com/special-report/2002/03/28/going-through-the-roof https://web.archive.org/web/20020619092906/http://www.economist.com/opinion/displaystory.cfm?story_id=1057057 June 19, 2002 dead subscription The New York Times December 25, 2005 https://archive.nytimes.com/www.nytimes.com/2005/12/25/business/yourmoney/25japan.html Take It From Japan: Bubbles Hurt Martin Fackler February 22, 2025 The Wall Street Journal February 10, 2006 http://www.realestatejournal.com/columnists/housetalk/20060210-fletcher.html Is the Party Really Over For the Housing Boom? June Fletcher June Fletcher https://web.archive.org/web/20060305214116/http://www.realestatejournal.com/columnists/housetalk/20060210-fletcher.html March 5, 2006 dead Dean Baker July 2005 The Housing Bubble Fact Sheet http://www.cepr.net/publications/housing_fact_2005_07.pdf Center for Economic and Policy Research dead https://web.archive.org/web/20070203014441/http://www.cepr.net/publications/housing_fact_2005_07.pdf February 3, 2007 Dean Baker Fred E. Foldvary (1997), "The Business Cycle: A Georgist-Austrian Synthesis https://web.archive.org/web/20070828080101/http://www.foldvary.net/works/geoaus.html August 28, 2007 ," American Journal of Economics and Sociology 56(4):521–41, October. Greg Mankiw 10.1016/0166-0462(89)90005-7 The baby boom, the baby bust, and the housing market 1989 Mankiw N.Gregory Weil David N. Regional Science and Urban Economics 19 2 235–258 12283640 1989RSUE...19..235M http://www.nber.org/papers/w2794.pdf Paul Krugman August 25, 2006 Housing Gets Ugly The New York Times https://query.nytimes.com/gst/fullpage.html?res=9C05E1D6133EF936A1575BC0A9609C8B63 Paul Krugman Robert J. Samuelson October 11, 2006 Home Is Where the Worry Is The Washington Post https://www.washingtonpost.com/wp-dyn/content/article/2006/10/10/AR2006101001284.html https://web.archive.org/web/20080923194438/https://www.washingtonpost.com/wp-dyn/content/article/2006/10/10/AR2006101001284.html September 23, 2008 dead "America's Rental Housing: The Key to a Balanced National Policy", Joint Center for Housing Studies, Harvard University, 2007 https://www.wsj.com/articles/SB123897612802791281 From Bubble to Depression? Steven Gjerstad Vernon L. Smith The Wall Street Journal April 6, 2009 subscription https://web.archive.org/web/20090409063931/http://online.wsj.com:80/article/SB123897612802791281.html April 9, 2009 dead includes charts Smith Vernon L. http://www.newsweek.com/2011/01/23/mired-in-disequilibrium.html Mired in Disequilibrium Newsweek January 23, 2011 https://web.archive.org/web/20110124214130/http://www.newsweek.com/2011/01/23/mired-in-disequilibrium.html January 24, 2011 dead External links Center for Economic and Policy Research – CEPR regularly releases reports on the U.S. Housing Bubble. Category:2000s in the United States United States housing bubble Category:Economic history of the United States Category:Financial economics Category:Interest rates Category:Presidency of George W. Bush