The Blue-State Housing Bubble

Another housing bubble is beginning to burst.  Its financial characteristics are different from the 2007-8 housing bubble but it shares one thing in common -- that it is caused by government policies. The 2007 bubble was caused by the Federal government insisting on home loan qualification standards changes.  Buyers who were not qualified to obtain traditional home loans were encouraged and even subsidized to get loans in states such as IL, CA, NJ, PA, and all other areas.  The details of these changes were documented by Pinto and Wallison. The bubble burst because the easy money home loan qualification changes created two prongs of financial instability: 1) persons who were not qualified were allowed to obtain mortgages and 2) the easy money policies rapidly escalated home prices and placed many mortgage holders underwater when the artificially high housing prices crashed. This bubble now being created in the biggest Blue states, while being driven by...(Read Full Article)

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