How Mortgage Practices Intensify Housing Booms

March 8th, 2014
in econ_news

by Leonard Nakamura, Federal Reserve Bank of Philadelphia

The infamous housing bubble was composed of two parts: an unprecedented, decade-long surge in U.S. home prices that began in the mid-1990s, followed by an equally unprecedented fall in prices from 2007 to 2011. the bubble was a major factor in the financial crisis associated with the Great Recession. Similar housing booms and busts in the past have repeatedly led to severe financial crises in many parts of the world. Why these booms occur is not yet fully understood, but we have recently made some progress in our understanding. In particular, it appears that changes in mortgage lending practices can contribute to the strength of booms once they get started.

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