In an important new paper from the Atlanta Federal Reserve Bank, the authors find that purchase loans to subprime borrowers were not the cause of either the house-price boom prior to 2006 or the subsequent crash. Rather, rapid U.S. house price appreciation during the 2000s was driven by prime borrowers who led the market in the speculative behavior and mortgage fraud that actually drove the housing boom and subsequent bust.  This finding contradicts popular thinking about the 2008 crisis and suggests that, even if history does not repeat itself the next time housing markets falter, prime loans, especially those for investment property, warrant very careful attention.

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