I just came across this blurb from George Soros’ latest book:
I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), “interest only” mortgages, and promotional “teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect.
Nothing qualitatively new nor surprising to readers of this site; it’s just always nice to have one of the world’s most successful financial market players land on our side of the debate.