Was the housing bubble caused by a lack of regulation and low interest rates?

[kasse]

Is it true that the housing bubble was created because the housing market was practically 100% unregulated?

 

[mgb_phys]

No, it was because people believed that house prices would keep going up.

 

[Ivan Seeking]

A great number of loans were issued due to reckless lending practices that came about because there wasn't sufficient regulation. What caused the housing bubble was credit that never should have been issued.

...PAUL SOLMAN: Andrews applied for, and got, a no-ratio loan, in which his $2,500 monthly payments would consume nearly all his take-home pay.

No-ratio?

EDMUND ANDREWS: A no-ratio mortgage in which literally I left the income space blank.

PAUL SOLMAN: Therefore, there would be no ratio.

EDMUND ANDREWS: Correct, yes, because there was an issue of my debt-to-income ratio. But if you don't have any income that you're declaring, you have no debt-to-income ratio. Problem solved. Even at the time, I'm going, "I can't believe this. Is this a great country or what?"...

http://www.pbs.org/newshour/bb/business/jan-june09/andrews_05-21.html

From there, loans could be bundled and sold, thereby relieving the original lender of any liability. This left no incentive for lenders to adhere to responsible lending practices - you could just pass the poison to someone else. The end result was to artificially flood the market with easy credit, thus driving up home prices.

 

[Evo]

There were intelligent mortgage shoppers, and non-intelligent mortgage shoppers. There were many crooked mortgage brokers that only cared about getting their commision for selling the mortgage and sold them to stupid and/or greedy people. No different from selling someone anything they can't afford, like an expensive car, boat, etc... When I got my first house, I believe the rule was that your mortgage payment couldn't total more than 28% of your NET pay.

caveat emptor

 

[mgb_phys]

House prices hve gone down in a lot of countries with different legal and banking systems.

http://www.globalpropertyguide.com/assets/img/JUN01_PR1.gif

(http://www.globalpropertyguide.com/)

 

[Phrak]

Is it true that the housing bubble was created because the housing market was practically 100% unregulated?

Other than some of the above, talking of the housing market break-over, the sale value of property is dictated in large part by the size of the mortgage payment. Low interest rates reduced the size of the required mortgage payments bringing a larger pool of buyers to the market. The greater number of buyers inflated the price of housing.

The period of low interest rates during this time was brought about by the Federal Reserve Banking System directing the prime interest rate through http://en.wikipedia.org/wiki/Open_market_operations" , to extremely low values, in the wake of the dot-com crash, in efforts to support US corporate value and productivity through the availability of low interest rate corporate loans.

In perception, readily available cash and credit were perceived by the vast majority as a sign of prosperity, where real property investments could be made with a sure income, rather than correctly perceived as a period of accumulating dept. (This sort of dept will be paid off through taxation and currency devaluation.)