2002 to 2007 Housing & Credit Boom

The 2002 to 2007 Housing & Credit Boom was the result of an increase in credit supply initiated by looser lending constraints in the mortgage market. With the housing boom fueled by run-up housing prices charged by demand, speculation, and related spending at the point of collapse, it was also characterized by the bull market, with many investors buying homes as speculative investments. As the changes in the ratio of household debt to gross domestic product between 2002 and 2007 correlate strongly with increases in unemployment from 2007 to 2010, the credit-supply expansions affect the real economy by boosting household demand, rather than the productive capacity of firms. The Credit booms tend to be associated with rising inflation and increased employment in construction and retail, rather than in the tradable or export-oriented business sector. Households’ mortgage debt surged, increased by about30 and 60 percentage points between 2000 and 2007, before falling during the financial crisis.