Causes of The Housing Boom?

Over at Seeking Alpha, Salmo Trutta commented: "CBs haven't been reserved constrained/bound since 1995. Then after 2 orbits of the sun this regulatory change (unbeknownst to the Fed's technical staff), triggered the housing boom."

There are other factors, but to answer your Trebek like statement... What is the taxpayer relief act of 1997.

The Taxpayer Relief Act of 1997 repealed the Section 121 exclusion and section 1034 rollover rules, and replaced them with a $500,000 married/$250,000 single exclusion of capital gains on the sale of a home, available once every two years. This made housing the only investment which escaped capital gains. These tax laws encouraged people to buy expensive, fully mortgaged homes, as well as invest in second homes and investment properties, as opposed to investing in stocks, bonds, other assets.

The TRA 1997 while encouraging an increase in type 2 non GDP producing transactions decreased type 1 GDP producing economic investments and transactions. i.e. it encouraged malinvestment and capital misallocation.

In addition, with virtually all restrictions on interstate banking phased out by mid-1997, the rapid consolidation among large U.S. banks accelerated. Giant banking companies such as NationsBank, KeyCorp, BankAmerica, Wells Fargo and Norwest continued to expand their geographic scope, homogenize their operations, and centralize their decision-making power.

And the last straw... in October 1997, First Union Capital Markets and Bear, Stearns launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6M of such securities. The securities were guaranteed by Freddie Mac and had an implied "AAA" rating. The public offering was several times oversubscribed, predominantly by money managers and insurance companies who were not buying them for CRA credit.

Oh and one other thing... due to various reserve banking regulation changes since 1959, when combined these subtle changes removed most reserve, and reserve ratio, restrictions by 1995. Thus the CB's (commercial banks) legal (fractional) reserves ceased to be binding circa 1995.

I do believe one of my mentor's Salmo Trutta once commented: "Prior to c. 1995, an individual bank could theoretically create deposits up to an amount approximately equal to its excess reserve position - unused lending and investment capacity. But by mid-1995, legal, fractional, reserves ceased to be "binding" - making the system's expansion coefficient less predictable."

And the rest is history, the results of which, we are still wallowing in the mire of today.