Reply #11: Understanding Context: The Housing Boom & Bust

[ozymandius]

From Ritholtz:

Over at Economix, Harvard economics professor Ed Glaeser looks at the ultra-low interest rates of the aughts, and does not find them to be much to blame for the US Housing boom and bust:

“The most common explanation for the great surge in prices is the availability of easy credit, which took the form of low interest rates, high loan-to-value ratios and permissive approval of mortgages. These variables certainly affect housing prices, but they don’t seem to have moved nearly enough to explain the great price fluctuations of the past decade.”

Professor Glaeser fails to see many of the causal and exacerbating factors of the housing boom and bust, including those directly attributable to ultra low rates. Why don’t we review these factors, for the benefit of both the Professor as well as those laypeople those who may have missed them.

We have reviewed these in the past, but given the prof’s 30 year chart, I would like to walk through the broader context of what took place historically.

Too many people are looking for a single explanation for a highly complex set of circumstances. There were myriad causes of the Boom & Bust, and it is far more complex and nuanced than the over-simplifications we typically see.

http://www.ritholtz.com/blog/2010/08/understanding-context-housing-boom-bust/