Another explanation from Fed Reserve Economists about why this is not an artificial bubble

More common sense news (pdf of abstract from Fed Reserve in Chicago) that provides another explanation as to why real estate prices rose quickly over the past five years and why prices may ease, but won't crash. The study overrides in part the conjecture that low interest rates and easy credit fueled artificial appreciation between 2001-2006 and that higher interest rates will restore home prices towards the level that would have occurred if that remarkable appreciation hadn't occurred. I've been charting the list of reasons that counter the bubble arguments:

1) Development of easy credit mortgage products. They may tighten, but won't disappear
2) Increasing wealth - baby boomers grow up, inheritance
3) Places like California where people want to live will always be in high demand.
4) Countries where people want to live and make it easy to purchase property will always be in high demand
5) Current housing affordability, based on home prices, income, and financing costs, remain favorable in historic terms

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