Housing boom

The housing boom of the early 2000s turned into a burst bubble, thanks to shortsighted economic policies.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid.

• Why did this happen?

The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.

the industry’s pre-bust condition was the artificial result of misguided interventions [1]

• What does it mean?

If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

See also

• subprime mortgages
• Community Reinvestment Act
• Recession of 2008