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Why Did Real Estate Appreciate so Quickly in the Early 2000's?    


Of course the answer is never simple and there are so many factors which kept pushing real estate prices higher, but the climate was perfect for purchasing real estate. The key items which made real estate appreciate so quickly where:

Employment - Unemployment rates were low so people earned more money and used real estate as vehicle to spend that money. Also demand for workers was much higher so most families were two income families thus affording a larger home.

Interest Rates - During this period of time interest rates stayed low allowing the homeowner to leverage more with the income they were earning. 

Government - The government wanted to increase home ownership on a mass scale so they loosed up their criteria and backed more unfavorable or risky loans while also keeping interest rates low making it favorable for more people being able to purchase.

Loose lender/bank programs - because these risky loans were backed by the US government, banks were allowing high risk loans and not checking up on who they were loaning money too. The stated income loan was very popular where a person with a high credit score could simply state that they earned such an such an income and the bank would believe them and give them a loan without doing there due diligence. Another example was banks would allow many people do wrap up other debts such as credit cards and vehicles into their loans for a lower overall payment. I heard as high as 125% loan to value. So someone who was purchasing a $250,000 home could instead get a loan up to $312,500 and wrap all their other debts into the payment. Also banks could package up and sell multiple loans to investors which opened up the flood gates and more sources of getting cheap money. 

Low inflation - inflation remained relatively low thus allowing people that were earning more money to be able to get more for their money. 

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