A Report On The Housing Market

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This report reviews a number of factors with the housing market, starting with the rent/price ratio, and covering relevant economic events and factors specific to renting and home ownership.
Rent/Price Ratio Data
The rent/price ratio data over a fourteen-year span from first quarter 2000 through first quarter 2014 tracks the trends of the housing market leading into the housing crisis that started in 2007 and its rocky path to correction. The start of this period shows a ratio of 4.7 percent, followed by a downward trend to its lowest point of 3.13 percent in the second quarter of 2006. The high point occurred in the first quarter of 2012, followed by another albeit smaller downward trend. These downward trends are clearly evident
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(Nasdaq, n.d.) Based on the data he was seeing with this bubble and the performance of the housing market, Shiller predicted a looming housing market collapse. (Brand, 2005)
Housing Bubble Collapse
True to Shiller’s prediction, the housing bubble soon collapsed, causing the worst housing crash in American history (DeGrace, 2011) that reverberated around the world. Let us look at what brought us to this point.
Stock market crash of 2000. Following the stock market crash in 2000, caused by the burst of the dot com bubble (DeGrace, The Dot Com Bubble Burst that Caused the 2000 Stock Market Crash, 2011), shaky investors turned to the housing market. Interest rates were relatively low. (Whitney, 2007) New loan options such as adjustable rate mortgages (ARMs), interest-only loans with the principal payment due at a later date (“balloon payments”), and zero-down loans gained prominence. Banks lowered their borrowing standards and offered subprime loans, and then sold these loans with undeserved AAA bond ratings to unsuspecting foreign and other investors. Adding to this momentum was the encouragement of the Federal Reserve and mortgage lenders. This all served to drive up home prices, sometimes at astronomical levels. (DeGrace, 2011)
Housing market collapse. The housing crash came in 2007. Borrowers started going into default on subprime loans they
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