“For the upswing of house prices from 1997 through 2001, we suggest the following four possible stage-setting events:

1. The bipartisan Taxpayer Relief Act of 1997, which exempted home resales from capital gains taxes up to a maximum of $500,000.
2. Government housing programs: Fannie Mae, Freddie Mac, and Ginnie Mae. Beginning in 1996, U.S. housing agencies were assigned target goals to direct their funding to low-income borrowers (subsequently, targets were increased to 50 percent in 2000 and 52 percent in 2005).
3. Laws intended to help the poor own homes by requiring mortgage lenders to be performance-rated on their efforts to lend to borrowers with incomes below 80 percent of the median family income. Accusations regarding these issues have centered on the Community Reinvestment Act (CRA).
4. The U.S. trade deficit, resulting in a large inflow of foreign investment capital beginning in the early 1990s. Chapter 3 (see Subsections 3.3.2 and 3.3.3) examined the inflow of foreign investment, comparing it with the net flow of mortgage funds…Chapter 10 revisits the topic of foreign investment flows in the context of the crisis experiences of several other countries.

(Excerpt from 2014’s “Rethinking Housing Bubbles”, by Steven D. Gjerstad and Vernon L. Smith. Mr. Gjerstad is a Presidential Fellow at Chapman University and has a Ph.D. in economics from the University of Minnesota. Dr. Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. Dr. Smith has joint appointments in the Argyros School of Business and Economics and the School of Law at Chapman University, and he is part of a team that created and runs the Economics Science Institute there.)

“Wow, I am shocked!!! I thought we had all been told by our government and the mainstream press that the banks and mortgage lenders were to blame for starting the housing bubble???” Mike Perry, former Chairman and CEO, IndyMac Bank