Basic Finance

How Ivory Tower Economists Created the Housing Bubble

Why did everyone ASSUME that house prices would continue to appreciate? If you take that assumption out, the rent/buy equation would have told people to stop buying a long time ago, even if interest rates were not properly adjusted higher to counter higher inflation. So..ultimately it is NOT the economists who are to blame, but those housing speculators who never even bothered to do the rent/buy calculation you describe. Right now I rent an apartment for $3000/month that would cost me $1,000,000 to buy. How low would interest rates need to be to justify that buy decision? The numbers so heavily favor "rent", I'm not sure tinkering with the inflation numbers and its associated rise in interest rates makes any difference (or would have made any difference 3 years ago). All your solution would have done is to change a RATIONAL rent/buy decision from "you are an IDIOT if you buy" to "you are a TOTAL IDIOT if you buy."