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« Fannie/Freddie Takeover & Bailout | Main | Real Estate Speculation and Mortgages »

September 10, 2008


Laurence Hunt

1. In the recent housing bubble, I think a major reason was speculation fuelled by ballooning money supply with associated low interest rates. Many buyers were "flippers," but that process (buying to resell) increased demand, and thus prices. Economics 101.

2. A second factor was using low interest home equity lines of credit to compensate for stagnating incomes. As home values rose, people borrowed more. That fuelled economic expansion, kept money flowing, and encouraged higher risk speculative behaviour.

3. After the stock market crash of 2000, people turned to investing in homes as assets rather than equities.

I attribute all three behavioural patterns to excess liquidity promoted by an irresponsible Fed (as per Volcker vs. Greenspan) and an over-spending government.

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