Paul Krugman posts a chart showing the housing bubble right alongside the commercial real estate bubble, and crystalizes an excellent point:
From my perspective, the CRE bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble.
Yes. There are a lot of things that were wrong with American housing policy in the early 21st century. In particular, Fannie and Freddie really were a ridiculous set-up and predatory lending is a very bad thing. Then the housing bust helped wreck the economy. This has led a lot of people to try to peg their pet issue as “the problem” but the evidence really doesn’t seem to be there. I know a lot of people, left and right, who seem to think this whole thing could have been avoided had we promulgated a regulation mandating that home buyers put at least 20 percent down. I think a rule like that would be prudent to adopt, but again if you look at CRE you see that the bubble was a much broader phenomenon than any quirk of the home mortgage market.
In fact, I think people are often getting the lines of causation backwards here. We didn’t see a bubble because of the proliferation of exotic mortgage products, the bubble created incentives to devise and sell exotic mortgage products. Predatory lending isn’t a new thing, but the bubble facilitated an increase. Fannie & Freddie didn’t create the housing bubble, the money that non-GSEs were making off the bubble housing bubble pushed Fannie & Freddie into unsound behavior. All this is bad stuff—lurking problems in the system—and should be fixed. But the bubble was bigger than any one thing.