The housing crisis of 2008 can trace its origins back to the stock market trends of the mid- to late 90 's. During a period of extended growth in the stock market, increased individual wealth among investors led to generalized increases in spending, including in the housing market. With more disposable income in the pockets of consumers, the demand for housing increased in the late 90 's. Due to the fact that homes are large projects and their construction takes a large amount of time, the supply of homes in the market is inelastic on the short term. Because of the fixed supply of homes, as per the law of supply, which
The housing market is not the only part of the economy that has suffered. Many states had already been suffering from the recession, revenue is even lower because of fewer purchases of houses. The labor market and industry have been suppressed as well.
Macroeconomics is an excellent tool for the analysis of the housing industry as something like a capital good, as a home is considered to be, cannot easily be studied in a short-term platform. Real estate is a good that costs several times more than an average persons annual income, in the United States that number is typically 7 times as much, and in the United Kingdom that number is 14 times as much. Several factors of both supply and demand directly impact the housing market on a macroeconomic scale. (Business Economics, 1)
Miami was hit very hard by the sub-prime mortgage crisis of 2008-2009, but according to recent housing data, Miami’s housing market is recovering rapidly. Average housing prices, both condominiums and single-family homes, have increased greatly from the bottom that occurred after the crisis. Data from the last quarter of 2013 reported by the Economic Development Division of Miami-Dade County showed an increasingly strong real estate market, as single-family median home prices were up approximately 16% year-over-year and foreclosures down 6% year-over-year (Cruz and Hesler).
The housing crisis in the late 2000’s was created in part from subprime loans that lenders gave to individuals that did not have to provide proof of income that they could afford the house. This was a disaster likely to repeat itself. If a person is hoping to buy a home, they will buy whatever the lender allows them to purchase even though it could be a financial stretch. Lenders, builders, sellers, appraisers, buyers, owners, and governmental policy makers are all still gambling with the economic future of both their buyers and the American economy as a whole.
It seems hard to believe that over ten years have elapsed since the peak of the US housing market in the previous economic expansion. Residential construction as a percentage of real GDP reached a zenith of 6.2% in 2005 Q3. The ensuing contraction saw this share decline -60% to trough at 2.5% of GDP in 2010 Q3. The current economic expansion began in 2009 Q3, but the sheer magnitude of the collapse made it virtually impossible for any subsequent housing recovery to impart the same outsized contributions to headline GDP growth compared to the previous cycle. This has consequently played a significant role in restricting the ability of the economy to shift into a higher gear of growth during the current
The new construction market in the mid 2000’s was flourishing. People saw building a home as an opportunity for a solid investment because prices and rates were so low that certain homes could depreciate extremely slowly. However, there would be a negative effect from all this low-cost new construction and few were aware of just how devastating it would be to the new construction market.
Seven years removed from recession, American homeowners are beginning to rebound from the hold created by the housing crisis. Throughout history, the housing market has been a key indicator of financial stability and the real economy. Housing booms and bust are often reflections on the mortgage market, labor mobility and consumer spending. With interest rates near zero, at the moment, the real estate market has experienced a steady rise in new and existing home sales, prices and mortgages. Likewise, developments in the U.S. housing market have been instrumental to gains in home improvement spending. In 2015, home improvement retailers, Lowe’s and Home Depot have delivered better than expected results thanks to the housing market recovery. Despite what may seem like a modest recovery, there remains significant concerns that the recovery will be short lived. Some evidence would suggest that interest rates, a flood of foreign investments, income inequality and the same culprits from 2008 are re-inflating a housing bubble.
2007, that was the year that everyone knew the world was about to change. Many analysts studying the markets knew that this day would come to surface. Among the citizens, few actually knew the problems the housing market was having while many of them just noticed that they were now able to purchase their dream home. Many Americans that knew that background however, were not aware of what exactly sparked this issue, nor what was in store for them (Natl. GPO .2) At the time, many citizens were not aware of what was going on in the housing market. The financial crisis would impact several people for many years to come (Yanis.6). While many researchers may argue that large financial issues in the United States have already
Our research has revealed in 1940 the U.S. Census Bureau recorded the median price of a single family home in the U.S. was approximately $2,938. The median yearly income was $1,730. The Housing Cost to Income ratio (HCTI) was just over 2:1. Most borrowers during this period kept their mortgages for 30-years. During the 1970s borrowers began to exhibit major behavioral changes by ceasing to keep their mortgages until full term (the average being 10 years) while their HCTI ratios ballooned to over 5:1.
Prior to the crisis, investments in the residential space saw a significant shift around 2002. Prior to that, residential investments over almost a 30-year period was estimated between 4 and 5 percent of the nominal gross domestic product. In only a short period of time from 2002 to 2005, housing prices exploded, housing prices skyrocketed, with the peak prices showing an increase of over 12% per year. (Dokko et al. , 2009)
What is the housing economy today? According to the National Association of Realtors, pending home sales improved slightly in April and continues to be well above a year ago. There are reports of bidding wars on some properties in neighborhoods where few homes are on the market. Some are even working there through the inventory of homes that were foreclosed on during the housing crisis. But there are many whom this is not reality. CoreLogic reports that 4.4 million foreclosures have been completed since 2008, the start of the Great Recession. In April, some 52,000 foreclosures were completed, a drop of 16 percent from March. Still, that’s twice as many foreclosures as in a normal housing market.
The 2008 financial crisis which displaced many home-owners created a new market for rent to own real estate properties. The recession caused home ownership to become unaffordable for average middle- and working-class citizens. This resulted in a clamor for affordable housing for millions of Americans who had lost their savings, their investments (homes), and their reputations (credit.)
The United States of America has seen its real estate market drastically decline which set off the 2007 global credit crisis. These have led to several countries examining their own economies for signs of weaknesses, particularly focusing on their financial institutions and their property markets.
Speculation - Speculation in real estate was a contributing factor. During 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, nearly 40% of home purchases (record levels) were not primary residences. NAR's chief economist at the time, David Lereah, stated that the fall in investment buying was expected in 2006. "Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market