Many countries have developed tools to take the air out of real-estate bubbles before they burst, but the U.S. has lagged behind.
A housing bubble burst in 2008 pushing the U.S. into deepest recession since the Great Depression. In the aftermath, many nations developed new tools designed to take the air out of real-estate bubbles before they burst. The U.S. has lagged in some respects, in part because of the deregulatory zeal of the Trump administration.
Raising rates “in order to address asset bubbles…[is] not something we would plan to do.” Powell told reporters earlier this year. “We would rely on macroprudential and other tools to deal with financial stability issues. “The suite of tools regulators have are imperfect, and there are other tools that that Congress could grant them to could bolster the arsenal,” Gelzinis said. Regulators in the UK and some countries in Europe can put limits on loan-to-value ratios that change based on the state of the economy. “You have one cap in normal times and another when the market is overheating,” he said.
Under the Trump administration, however, the debt-to-income limit was scrapped for a market-based approach that relies on private underwriters to determine whether a borrower is likely to default on a mortgage loan. Read more: The Fed is standing aside as house prices rip higher — but here’s what could get in the way
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