In June 2005, mortgage rates were at 40-year lows, and risk premiums on mortgage securities were at all-time lows. Once the banks migrated to the subprime area, there was little else that could be done to send housing prices higher.
What began as a subprime lending problem has spread to other, less risky mortgages and contributed to excess home inventories that have pushed down home prices for responsible homeowners.
Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.
A strong economy causes an increase in the demand for housing; the increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible.
Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we're going to continue to have turmoil in the financial markets.
Fannie and Freddie made two-thirds of all subprime mortgages. That is not a free market institution. That entity, along with the Fed printing too much money back in '03 and '04, caused the housing collapse. So we need to take free markets seriously. That means we have to put an end to all these tax credits and tax deductions and loopholes.
Bubbles have quite a few things in common, but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different.
Money in property is dead money. It doesn't help the country. It's funny how the U.K., Ireland and Spain are the most property-obsessed nations in Europe and yet are also the ones suffering the most.
I would say the biggest single cause was we had an incredible residential real estate bubble.
It is hard to be enthusiastic about the economy's prospects when house prices are falling: Households spend less, small business owners can't use homes as collateral for loans and local governments are forced to cut jobs and programs as property-tax revenue disappears.
The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value it once was.
