Interest Rates and House Prices: A Murky World
(New York Times) — Did the proliferation of low-down-payment, low-documentation loans cause the housing bubble? Last week, I discussed one core problem with answering that question — we don’t really know what happened to approval rates or loan-to-value levels over time. But let’s assume that we did know, and that loan-to-value ratios increased by 5 percent over the bubble while approval rates went up by 10 percent (or pick whatever numbers you want). Could such changes explain the 53 percent real increase in housing prices between 1996 and 2006?
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