Learning what caused the housing bubble might just help avoid another one somewhere down the line.  There has certainly been a lot of talk about what caused the housing bubble.  As with anything in life, hindsight is 20/20.  There are however, always lessons to be learned and hopefully what we have learned from the real estate market can be used in avoiding future housing bubbles from occurring.

Economists are blaming the housing bubble on several factors.  One economist, Randal O’Toole, points out that the housing bubbles that have occurred across the country have been localized, and in fewer markets than the general population might even be aware of.  According to O’Toole only 12 states have really been hit by the housing bubble.  This particular economist attributes states with urban planning departments as those with the biggest issues.  Communities and developers that restrict development can create volatile real estate values.

Another issue of course were the zero down loans.  The traditional 20% down helped cover a borrower during typical market fluctuations and kept most borrowers from going under water.  With zero down payment a borrower has nothing to lose if he walks away.  When Fannie and Freddie started buying loans with 10%, 5% and then 0% down, other lending institutions followed suit making sub-prime loans run rampant.

Whatever the causes of the housing bubble and regardless of whether it happened in 12 states or 50 states, the effects have been felt nationwide.  Understanding how we got here will help us face the future.

Click here to learn more and read an interview with Randal O’Toole.

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