Housing Bubble Case Study

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 crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

Homeownership is now competitive in the market with most people willing to bid $10,000 over the asking price. Even with some strong points in the housing market people think that the increasing homeownership is not a worthwhile policy goal for America.

With the consistent increase of property prices and more personal debt than ever before, we assume that there’s a housing bubble in Australia. The statistics show that from 2008 till now, property prices have been going up as a result of increased mortgage debt. When it slows down, that could cause a property crash. We are sure that there’s a housing bubble, but we cannot confirm when it will finally burst although a few area in Australia has already met a decrease of house prices. There are 3 indicators of the housing bubble in Australia.

Post-housing/financial crisis of 2007-2009, the housing market seems to be showing signs of improvement after great downturn. With the downturn in housing prices, many homeowners did not have enough equity to avoid taking a loss on the sale of their homes so they are sitting with home loans based off of higher-than-current mortgages. However, in November the National Association of Home Builders’ sentiment index jumped to 20, which is the highest reading in over a year. Demand for mortgages has also seemed to pick up a bit according to the Fed’s 4th quarter loan survey. Construction remains at historically low levels but has increased as of late, and the number of

In the U.S., a housing bubble began to emerge just after the turn of the 21st century. In these years, the economy was in great shape, interest rates were low, and consumers were ready to buy, which drove up real

The availability of affordable housing stock may, therefore, be an issue. Furthermore, there is also the thorny issue of credit availability to consider. According to the Mortgage Banker’s Credit Availability Index, access to mortgage finance reputedly became more difficult in June for the eighth successive month, despite conventional mortgage rates remaining low. Meanwhile, the strength of new home sales in the high-end segment comes against a backdrop of a growing spread between jumbo (in excess of $417K) and conventional mortgages to their widest level since March 2011. Despite continued falling mortgage rates, the behaviour of this spread suggests risk aversion prevails amongst lenders.

The current housing market is experiencing another large, daunting bubble that I fear is leading to another burst and market crash. The “Baby Boomer” Generation and the “Millennial” Generation are currently experiencing a great disparity gap between the two of them, both in pay and in purchasing power which directly affects the housing market. As the Baby Boomer Generation begins to retire and move on from where they currently live, the housing market will suddenly experience a boom in available housing. The issue then becomes that the Millennial Generation does not currently have the economic buying power to purchase these houses. This issue is currently visible in the Bay Area where housing is at an all time high. Houses are currently being listed as Baby Boomers want to move out of the higher cost of living areas into lower cost of living areas when they retire, but their current listing prices are prohibitively expensive at the current wages the new buying generation makes. These houses are being listed for longer periods of time, many homes listed over a year, with no successful bids.

Between 2004 and 2006, the Federal Reserve Board raised interest rates from 1% and capping out at to 5.25%. Even with interest rates on the rise, the housing bubble continued to grow. Why did the bubble continue to grow when typically interest rates increase homeownerships typically declines as well? Economists look at the lending practices before and after the bubble. Prior to the bubble standard typically included, “documentation of credit histories of prospective borrowers, their current income and assets, evidence of job stability and pay, and related factors that in theory help a lender assess a potential borrower’s ability to pay for a mortgage.” During the 2000’s lending practices eased with the government continuing to push their policy on continuing to grow homeownership numbers. To continue homeownership lenders developed new innovative loans such as, “piggy back loans (80/20), adjustable rate mortgages, stated income loans, negative amortization mortgages, and multi-layered risked.” These loans gave homeowners many options as with piggy back loans, allowed consumers to purchase a home without having to put down a down payment, however they would have a first and second mortgage. Many consumers also opted for adjustable rate mortgages such as interest only loans. These loans allowed the consumer to purchase a home that would most likely be out of their monetary range, with

In 2005, the market was flooded with a vast array of homes that were all selling at a low price, and this allowed people to buy and sell homes with minimal effort. Banks were being reckless with their lending, not giving enough attention to who they were giving mortgages to, as virtually anybody with a decent credit score could go to a bank and get a mortgage, sometimes without even going to see if the land and ability for development was there. This created a housing bubble in 2006, and would inevitably come back to hurt a wide range of industries, but few were as damaged as the new construction industry.

For the past several years, the housing market has been mutually beneficial for both buyer and seller. The cost of real estate has risen but has maintained or gained value. People who have owned their home for quite awhile are seeing astronomical amounts of money to be made off the sale of their home, and so the market has been inundated with housing for sale. It leads us to wonder whether this boom is heading for the crash. Is now still a good time to buy? If so, what type of property will continue to gain value? Will new buyers end up stuck in their home as the value drops? As a homeowner, I am nervous about the state of the real estate market. This is not the house my family wants to call its home forever, but could we get stuck here? Yes, we could. If the housing market drops, then so will the amount of money we could potentially make off the sale of this house. If it drops enough then it would be possible to end up owing money upon the sale. Unless you are independently wealthy, you hope to make money off the sale of the home to help finance the purchase of the next home. Real estate agents will tell you that now is still a good time to buy. While it is speculated that the market will drop within the next year or two, if you are willing to sit on your new purchase for several years, an upswing will occur again. There is never any guarantee that you will recoup the money paid for and put into a home. If you intend to purchase a home soon, it would be a good idea to

One of the first indications of the late 2000 financial crisis that led to downward spiral known as the “Recession” was the subprime mortgages; known as the “mortgage mess”. A few years earlier the substantial boom of the housing market led to the uprising of mortgage loans. Because interest rates were low, investors took advantage of the low rates to buy homes that they could in return ‘flip’ (reselling) and homeowners bought homes that they typically wouldn’t have been able to afford. High interest rates usually keep people from borrowing money because it limits the amount available to use for an investment. But the creation of the subprime mortgage

Establish Credibility: According to US News, the great American dream of owning a home appears poised for a comeback. Real estate company Trulia reports that in many parts of the country, rents are rising while housing prices are falling, making buying a home more affordable. Trulia found that in 98 out of 100 major metropolitan areas, including Detroit, Atlanta, and Cleveland, buying has become more affordable than renting.” I think the mortgage catastrophe of 2001 left prospective home buyers afraid of buying a house without being extremely certain that is the right decision.

None of these explanations, however, is capable of fully explaining the housing bubble. From 1997 to 2006 nominal U.S. housing prices rose 188%. By mid-2009, however, housing prices had fallen by 33% from peak. As the United States attempts to rebuild its housing finance system, it is of paramount importance to understand what caused the housing bubble. Until we understand how and why the housing bubble occurred, we cannot be certain that a reconstructed housing finance system will not again produce such a devastating bubble. As you can see there are numerous theories and explanations for the bubble. Without getting too deep

Real estate prices will not rebound any time soon. Housing is cyclical and we had a tremendous 8 year cycle which produced 150% appreciation between 1997 and 2005. This cycle was extended past its natural course through unprecedented low mortgage rates which bottomed at 4% for "variable" rates that were fixed for 3 or 5 years. Also contributing to the boom were loosened lending rules such as "interest only" loans which keep the payments artificially low and "stated income" loans which bypass income verification, making loans available to people who would normally not qualify. In my home area of Southern California, the prior down cycle also coincidentally lasted 8 years, starting in 1989, bottoming in 1995, and rebounding in 1997, causing 20% haircuts from top to bottom. These cycles always go through the same phases: greed, denial, fear, pain and resolution. First speculators disappear, prices become stagnant, and houses stay on the market. "For sale" signs creep up as demand vanishes and sellers sit on their houses longer, creating a greater supply and putting more downward pricing pressure. Sellers reduce their asking prices, builders offer special incentives. The inventory builds up, desperate sellers discount further, some default on their payments, and the repossession phase starts. Banks, who are not in the business of owning homes, dump them at or below what is owned on the mortgage. They tighten lending standards as they no longer want marginal buyers, reducing