The Burst Of The Housing Bubble

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.

The dot-com bubble in 2000 was the start to the, still current, historically low interest rates – all thanks to the Federal Reserve. Since interest rates were so low, many Americans decided that now was the time to get the “American Dream” and buy houses, since the values were going up and mortgage and insurance rates were so low. By serially refinancing, people were quite literally treating their homes as a money bank, and not thinking twice of the equity they were loosing in the process, because they thought that the value would only go up, while their mortgages would decrease, and were blinded by the so called “American Dream”.

The US housing bubble and crash of the early 21st Century was unusual in that it was a truly national phenomenon. Historically, the bulk of residential real estate boom-bust episodes were usually regional. The consolidation of the US banking system, whereby banks merged across state borders, helped to sow the conditions where housing cycles became less provincial. Additionally, the growth of the Government Sponsored Enterprises (GSEs) facilitated the expansion of a national mortgage market. Recently, some commentators have been noting that the post-Great Recession recovery in US housing has reached dangerous levels, thereby implying that the sector could be experiencing another bubble. Consequently,

FDR’s affordable housing initiative was responsible for the rapid expansion of home ownership throughout the United States (Allen and Barth, 2012). This was accomplished in part through the creation of The Federal National Mortgage Association, which provided affordable low down payment mortgages extended over a 30-year period of time. Over the past several decades the United States economic policy has been to encourage home ownership (Bluhm, Overbeck and Wagner, 2010).

Homeownership is a far in the future goal for many young American and many may never even reach it. The rising cost of living and education puts many into debt. And, the difficulty of finding a job before, during, or after college makes staying above that debt difficult. As a result, for those who want to have kids they could be putting themselves even further into financial distress. Overall, there are many factors that make obtaining a home difficult, so luck and/or hard work may not be enough to achieve the original 1950s American dream. In conclusion, the house in the American Dream seems to be fading

Several years ago, many of us could not imagine mortgage meltdown ending. It seemed as if the foreclosures/short sales were increasing and the American dream of buying a home was decreasing. Many people felt hopeless and cheated when it came to the economy’s poor status due to the housing crash. Many lessons were learned from the collapse and although it may seem hard to believe, there were silver linings in the mistakes made during the mortgage meltdown. Today, real estate buyers are benefiting from the past mistakes and have more confidence in their home buying purchases.

As the white picket fence mentality dissipates, we are left with the truth, working people now are not able to own their homes. This bold recognition of the drastic difference between the dream and reality, is further analyzed by EbScoHost writer, Richard Florida. Florida draws attention to this topic in his work, “Rent Out the American Dream”, and concludes that, "[the] two aspects of the American Dream -- a better, richer life and homeownership -- are in conflict…Americans [act] as indentured servants to their homes" (Florida), this outcome is in direct opposition with all the dream stands for. The housing market being in a state of predatory disaster essentially forces “pure bred” American families into corners. Not only does this cause American families to potentially lose their house but drown in debt at the fear of doing so.

Though in most areas of the country the housing market has rebounded even creating another balloon in the real estate market. Many lessons were taught with the collapse of the housing market. Having purchased my first home in 2015, I found out how selective mortgage lenders are now with providing mortgage loans. The lowering of the interest rate and the increase in employment has help stabilize the economy and revived the housing market. Dokko, Doyle, Kiley et all validated that America strayed too far away from the Thomas Rule when issuing interest rates and when valuing properties.

“Why didn’t Canada’s housing market go bust?” This is a question that has attracted interest from economists, market researchers, and the general public as a whole. The Canadian and U.S housing markets are moderately comparable in numerous respects, but when it comes to the financial crisis both countries resulted in extremely diverse ways. There are many things that can be attributed to the different outcomes of both countries, including: lending standards, rise of real estate, and above all the crash of the sub-prime mortgages which will all be examined. What will first be analyzed are the history of the housing market in both Canada and the U.S prior to 2008 and the market crash, then the comparison of the factors that caused each scenario in both Canada and the United States, as well as the present situation in both Canada and the U.S.

One of the notable issues with the U.S housing market is the extent to which the Government failed to stimulate home ownership rates in the long run. Historical trends in the U.S home ownership rates show stagnant growth in home ownership after the early 1960’s. The Federal Reserve Bank of St. Louis Review indicated that homeownership rates remained relatively constant from 1965 to 1995, despite a wide variety of government policies aimed at stimulating home ownership (Federal Reserve Bank of St. Louis Review 2006). Following 1995, the U.S home ownership rates indicated significant improvements. According to the U.S Statistical Abstract, aggregate home ownership during the period 1995 to 2005 indicated a record high for the U.S housing market (Chambers, Garriga, & Schlagenhauf 2008). Matthew Chambers, a professor for Towson University,

The following essay will thoroughly examine the severe economic downturn of 2008, formerly known as the housing bubble collapse. We will mainly focus our discussion on the effects the financial crisis had on Canada and the U.S and examine why both countries were affected differently. Although the collapse of the housing bubble is the most identifiable cause, it is extremely difficult to pinpoint one specific defining moment or event triggering the global financial collapse. There are many factors involved, due to the complex nature of the financial systems across the world, and this paper will delve in the key contributing variables that led to this financial crises.

6.3 TRILLION DOLLARS! This is how much the value of homes have fallen in the United States since its real estate peak back in July of 2006. After the price of houses peaked in 2006, they gradually started to decline until December 30th, 2008. This is when the Case-Shiller home price index which measured the value of homes, reported its largest price decrease in its entire history. From there we saw prices continue to decline until we hit all-time lows in 2012. The United States housing bubble burst will be talked about for years to come including many what caused it and how to prevent such occurrences in the future. Low interest rates, Housing bubble, subprime mortgages, as well as securitization all contributed to the housing market crash of 2008 and will all be explained in this paper. According to the general consensus, most people believe that the housing bubble was the main cause of the 2007-2009 economic recession in the United States of America.

Since the inflation of the United States dollar continues to rise every year, housing prices in relation to the peak of the market in 2006 are at a standstill, or even are decreasing in many cities. The housing market has fully recovered from the devastation of 2006. Currently, homes in San Francisco are worth, on average, almost 15% more than in 2008. Unfortunately, due to inflation the majority of the value in the housing market has decreased since the mortgage fallout, by 19.4% (“American House Prices”). The housing market peaked just before the collapse of 2006, mainly because banks became greedy and did not check the majority of their clients credit scores. As the time passed, banks soon realized that their plans were not unfolding as planned. The Washington Post estimated that at the time of the fallout 1 in 5 mortgage holders had below average credit. In many banks, whole empires were controlled by “subprime mortgages”. This meant homebuyers who had poor credit scores dictated the

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.

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.