Causes of The United States Housing Bubble

Causes Of The United States Housing Bubble

Equivalent price-to-earnings (P/E) ratio for homes.
To compute the P/E ratio for the case of a rented house, divide the price of the house by its potential yearly earnings or net income, which is the market rent of the house minus expenses, which include property taxes, maintenance and fees. This formula is:

For the example of the $250,000 home considered above, the P/E ratio would be 24 if this home rents for $1250 per month. Fortune magazine cites a historic range of 11 or 12 for the simpler price-to-rent ratio.

Observers and analysts have attributed blame for the 2001-2006 housing bubble and its 2007-10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan". Other culprits accused of blame include "Mortgage underwriters, investment banks, rating agencies, and investors", "low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance" Politicians in both the Democratic and Republican political parties have been blamed for "pushing to keep derivatives unregulated" and "with rare exceptions" giving Fannie Mae and Freddie Mac "unwavering support".

Read more about Causes Of The United States Housing Bubble:  'Mania' For Home Ownership, Risky Mortgage Products and Lax Lending Standards, See Also

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