This chart from ContraryInvestor.com (subscription required) shows 40+ years of Fed Fund rates vs. full CPI (including food and energy prices, excluding shelter/housing costs).
The disconnect between interest rates and CPI from 2002-07 is especially noteworthy in light of Greenspan’s recent arguments that low interest rates weren’t responsible for the housing bubble. Apparently, giving banks access to a spigot of cash does not encourage reckless lending. Here’s Greenspan rationalizing extended low interest rates during this period:
We had been lulled into a sense of complacency by the modestly negative economic aftermaths of the stock market crash of 1987 and the dotcom boom
Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions
Given that we had never seen home price appreciations this rapid, might an objective observer have thought something off? Someone who’s full-time job it was to assess these things?
Here’s another great chart from Contrary Investor (again – CI is subscription only, but well worth it IMO. I have no stake in posting these links, but they offer some of the best charts and analysis I’ve found).
The chart below shows various home and rental market vacancy stats. Though things have improved, we still have to see what goes down when (and if) the Fed/Govt ends their massive support programs (currently scheduled to expire near the end of Q1 2010). Things may start deteriorating all over again, but we’ll have to see.