Over a decade ago in 2001, the Federal Reserve planted the seeds of the 2008 financial crisis by lowering its target for the federal funds rate from 6.25 percent to 1.75 percent. Since this interest rate is a benchmark number used throughout financial markets, many first-time homebuyers were able to enter the housing market thanks in part to both new looser lending standards and the record-low teaser mortgage rates banks were offering.
The Fed then lowered the rate even further in 2002 and again in 2003, when it reached just 1 percent and stayed there for more than a year. These easy money policies may have helped temporarily decrease unemployment and drive homeownership rates to record highs, but they also created a real estate bubble. When that bubble popped in 2008, it precipitated the biggest recession since the Great Depression more than 80 years ago.
