As the graph below shows, there has been a boom in the sale of new, single-family homes in the US since the late 1990s.

In recent weeks, common wisdom bandied about on financial talk shows is that this housing boom was somehow caused by Federal Reserve Chairman Greenspan’s reduction in short-term interest rates during the years 2000-2004.

But is this reasonable?

Might there not be some other explanation?

Consider Demographics Rather Than Interest Rates

The thing that strikes me about the graph of new home sales (besides the boom of the late 1990s) is that the addition of new homes to the US housing supply has been more or less stable for over thirty years, fluctuating around only 600,000 new homes a year.

New Home Sales Began To Take Off in the 1990s
New Home Sales Began To Take Off in the 1990s

In 1999, the stock of single family homes in the US was about 112 million units. That means that the supply of new homes, for over thirty years, was less that one percent of the number of homes in use at the end of the century.

New Immigrants and Internal Migrants Need Homes

Compare this to the statistics on legal immigration, which, since the end of World War II, has grown from about one million a year, to over nine million a year by 2000. See the graph in the article, “America Grows With Legal Immigration“.

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Total mortgage borrowing fell 6.6% during Q4 2005, compared to the previous quarter, according to Federal Reserve flow of funds table F217.

Mortgage borrowing by households fell even more, down 11.7% compared to Q3 2005.

Two-thirds of mortgage financing came from agencies (e.g., Fannie Mae) and issuers of asset-backed securities.

The rapid withdrawal of borrowers from the home mortgage market, as interest rates rose in Q4 2005, suggests that much of the borrowing over the last year or so was probably opportunistic, stimulated by low interest rates and aggressive marketing (e.g.,


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