Causes And Consequences Of The Housing Bubble

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

In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined as “a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices” (businessdictionary.com 2014). When the bubble bursts, the result is a quick decline in home prices (businessdictionary.com 2014).

The financial crisis of 2007–2008, also known as the 2008 or global financial crisis, is considered by many economists to have been the worst crisis since the Great Depression of the 1930s. It occurred despite aggressive efforts by the Federal Reserve and Treasury Department to prevent the U.S. banking system from collapsing. This led to the Great Recession. That's when housing prices fell 31.8 percent, more than during the Depression. Two years after the recession ended, unemployment was still above 9

When researching past economic recoveries, the housing market is the one to drive the economy out of recession. That being said, this economic recession hasn’t had much of an impact until recently. America’s housing boom had a tremendous influence on the economy for its low prices and flow of new home construction.

The housing market had raising prices that economists thought was just steady growth. However, once the prices began to drop people grew fearful and stopped buying. This totally through the market off and it crashed. The country from there financially spiraled out of control.The cause for this bubble and the bursting of it can be attributed to banking that was irresponsible to say the least. Bankers were handing out to mortgage loans to people with low income jobs and poor credit

The Housing Market of 2007 has been described as one of the worst financial crisis since the great depression. Not because the actual hit of the crisis, but because of the lingering effects that still plagues the United States and other countries today even in 2015. The United States economy was not economically prepared for the crisis that presented itself in 2007. This financial crisis hit a variety of areas such as the housing market which seemingly was one of the major causes of the financial.

The 2008 financial crisis was the most serve crisis seen since the Great Depression (Duca). There were a number of factors that contributed to inflating the housing bubble, in which it collapsed under its own weight (Duca).

The financial crisis of 2007 was the direct result of housing bubble burst, also known as the United states subprime mortgage crisis. The United States subprime mortgage crisis was a, nationwide banking emergency, occurring between 2007-2010, which contributed to the U.S. recession of December 2007 – June 2009. Subprime lending means, “making loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks, such as unemployment, divorce, medical emergencies, etc. (investopedia.com).” Up until 2006, It was easy to have good credit because the credit (money) they obtained came from different countries. As a result, people used this credit to get expensive home loans, and this is what created an economic

The “Housing Bubble” itself might be define as an increase in demand spurred a gradual rise in price which shortly turned into significant and rapid price increase on the market. Because of the stable wealth increase in economy since the mid 90’s the US citizens represented stable housing demand

In 2007, the housing bubble burst, the main contributor was due to the correction of the Fed Fund interest rates. When interest rates began to increase the home sales decreased, the housing price crashed- meaning that the value of the homes spiral to all time low. The mortgages on millions of homes became worth more that home itself, this cause many homeowners to default of payments and foreclosure roused at an alarming rate. With the massive defaults devastating the markets it undermined Wall Street’s financial instruments and forced some of the countries’ largest corporations into a tail spent of chaos. The mortgage crisis was officially formed like a tornado leaving a path of destruction.

The first perspective that we will look at is the timing of the housing boom. During this time residential investment moved above the average range and rose substantially towards the end of the year (Dokko, J., Boyle, B., Kiley, M. T., Kim, J., Sherlund, S., Sim, J., & Van den Heuvel, S, 2009). During

The mortgage meltdown is the period where the real estate market noticed a steep increase in home foreclosures that led to a period of insanity in 2007. This meltdown was the driving factor behind the economic recession that burdened the United States’ economy in 2008-2009. To begin, the housing bubble popped. The housing bubble was the highly overvalued real estate market. The burst of this bubble, which led to the financial crisis, was a correction to the overvalued real estate market. The real estate market, like any market, is subject to the basic law of Economics: supply and demand. It began with subprime lending all over the United States that showed a jump in demand or shift in the demand curve to the right. Subprime lending is where banks grant mortgages to individuals with poor credit history. In time, the individuals defaulted of their loans or failed to make payments.

Housing bubble refers to a period in the real estate industry when the houses have the rapid increment in the price, and this price is above the average price.

US economics was considered as “too big to fail” market. No one imagined that US crisis could happen, because the US market was too powerful, it had been through a lot of change to prove it’s strength. In 2003, 2004 when “Housing boom” could be heard anywhere in US, house was recognized as “American dream”. Anyone invested in housing market can make a lot of money, Lehman Brothers as well as other invest banks earned a lot. A lot of people lend money to buy houses then sell them, the price kept increasing, however like the other bubbles, housing market collapsed when the supplies overs demands: by 2004, U.S. homeownership had peaked at 70%, and the fourth biggest bank in US faced bankruptcy.

The Federal Funds Rate also started to rise during this period. As seen in Figures 4 and 5, the number of houses under construction and housing prices during the mid 2000s were growing extremely steadily. Similarly to the dot-com boom, there was a housing boom due to the fact that housing prices were growing and people were becoming more interested in investing in houses. They believed that housing prices would continue to grow this steadily and investing would be worth it in the long run, so much so that average people were buying houses just to turn around and sell them for a profit. The average mortgage rate in 2001 was $90,000, which grew over 60% to $150,000 in 2007. This unsustainable growth in housing prices led to another bursting bubble. Not only were households very much in debt due to their high mortgages, but financial firms were also so heavily indebted as they were selling risky loans.