re: Drudge linked, Economist on housing bubble: We never left the bubble, its bubble inception

This isn’t close to the same as the previous housing bubble.

That bubble was created because:

A. Mortgage Lenders were told to relax lending requirements for the purpose of allowing less fortunate people to “live the American dream of owning a home!”, and as a result, anyone with a 450+ credit score could get a mortgage.

B. Lenders created new types of loans to accommodate this. You could do 100% financing, and even add in your closing costs to the loan. You could even do an 80% mortgage, and then a separate 20% second mortgage, and this would allow you to bypass PMI.

C. On top of this, you could get astronomically low premiums for 7-10 years (ARM - adjustable rate mortgage), while the vast majority of your premiums went towards interest rather than principle, but then be prepared for a balloon payment after your deferred term. However, don’t fret, you can simply refinance and do it all again.

D. Banks/mortgage lenders were selling these mortgages to Fannie and Freddie. Except this was a full blown Ponzi scheme in the works. The tranch rating companies were being paid off/bribed to grossly overrate the quality of the mortgage tranches (groups of loans packaged together). Fannie and Freddie were hiding super shitty loans that were already either in default or in arrears in tranches with higher quality loans to mask and hide their embezzling of federal dollars to their crony banking friends.

E. Eventually, too many Fannie and Freddie tranches went upside down. More money was going out than interest payments coming in. This triggered an audit and federal oversight found the Ponzi scheme and blew it up. Stocks plummeted and banks, lenders, and market wire houses lost their arse.


Needless to say, NONE of that is happening right now. The current housing market is not being driven by anything of the sort.

You can’t buy a home with shitty credit anymore.

You can’t do an 80/20 loan anymore.

Banks and lenders are refusing to do 7-10 year ARM’s with balloon payment mortgages.

Ratings companies are heavily regulated and audited.

Fannie and Freddie aren’t running a Ponzi scheme anymore and also under extremely heavy oversight with all new sets of rules and regulations.


The housing market took 8 years to fully recover. And it’s doing really well right now because the average homeowner lives in a home for 9-10 years. And all those people who bought homes during the 05-07 home buying boom are jumping into new homes.

In addition, a lot of lumbering regulations have been relaxed and lumber is cheap and home building materials are in large supply. And the economy is kicking arse and building companies have extra cash on hand to invest in building new neighborhoods and development communities.

Plus the average home buyer who has been penny pinching for a decade is feeling good about the direction of the economy and they are deciding to spend some of their savings and equity from the home they built 10 years ago.