By DEREK P. GILBERT
April 1, 2008
In 1997, I bought my first home. It was a modest 1,000 square foot early ’70s ranch home with a one-car garage in suburban Saint Louis, and it cost me about $92,000.
In the spring of 2006, it appraised for $185,000.
The value of our home didn’t change during those nine years. It was a cozy place to raise our daughter, conveniently located with regard to work, shopping, our bank, and major highways. While I kept the house in good shape, I didn’t invest anywhere near $90k in upgrades. There were no changes in the job market that increased demand for houses in our neighborhood. And we sure didn’t find oil or precious metals in the garden.
So why did two of the largest mortgage bankers in America tell us our house had doubled in value in less than ten years?
Alan Greenspan, chairman of the Federal Reserve Bank from 1987 to 2006, began inflating the housing bubble — as he now admits — by kicking off a “decline in real long-term interest rates” that reached its zenith in 2002 when the Fed dropped the federal funds rate to 1.0%.