Housing Bubble

2922 Words May 1st, 2013 12 Pages
According to Wikipedia a housing bubble is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame. In my research paper I will try and demonstrate what a housing bubble is, some of the reasons for the bubble, was it preventable, how it kept growing, how it burst and how it has affected our economy. By definition a housing bubble is a temporary condition caused by unjustified speculation in the housing …show more content…
Other scholars have emphasized the sharp deterioration in lending standards as contributing to the rise in housing prices as well as the importance of changes to the mortgage market institutional structure. Other explanations of the bubble have been demand side explanations, meaning that the bubble was caused by excessive consumer demand for housing. One leading explanation argues that the bubble was the result of irrational demand encouraged by a belief that housing prices could only move upwards. Other research points to the fundamentals of housing markets, particularly population growth, placing upward pressures on housing prices in markets with inelastic housing supply, thereby explaining some of the geographic variation in the housing bubble. 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