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Discussion: (2 comments)

  1. Todd Mason

    They miss the “second half” of the story because it didn’t happen. Yes home prices were deteriorating from 06 on, but the collapse began with the takeover of Fannie and Freddie in Sept, 08.

    Sumner cherry picks data to make an alternative case. Florida real estate prices did in fact collapse in the 1970s. MSFT held up in 2000, sort of, but pure Internet stocks like Cisco, Lucent and MCI Worldcom fell sharply and did not recover. The housing bubble was more pervasive because mortgage financing dried up overnight — on Sept 3, 2008, to be exact.

  2. Benjamin Cole

    Not sure the Fed was “too loose” leading to a “bubble.”

    Nobel Prise winner Fama would say there is no such thing as a bubble, but rather market estimates of value. People buying real estate up until 2008—and this includes sophisticated institutional buyers of large commercial real estate—bought thinking the market would favor such a purchase.

    We night have had no bubble but rather a plateau if the Fed had not tightened too much in 2008, at precisely the wrong time.

    That said, it may make sense to have stricter underwriting standards on real estate and leverage. Both commercial and residential sectors fell by about the same amounts btw.

    Larger downpayments, and requiring originator to keep some portion of the loan in house might make sense.

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