The Real Estate Bubble Crisis

1597 Words Apr 23rd, 2015 7 Pages
From the late 1990’s to mid-2000’s the United States experienced an unprecedented run up of real estate prices across the country that reached a peaked in 2006, in some areas up to an eighty percent increase. After the increase in prices, there was a sudden collapse of real estate prices in 2008, brought on by a surge in foreclosures, and an increasing inventory of housing.1 Foreclosure increases came from an unprecedented rise in mortgages called, subprime mortgages. These risky subprime mortgages, and the cottage industry within the financial sector that profited from them, created an overly leveraged and over exposed finance industry that created a massive recession when the bubble popped. In this essay, we will look into the many causes that created the bubble and the over exposure of the financial industry. The real estate bubble that led to the economic collapse of 2007 was caused by a mixture of easy credit, government policies that encouraged home ownership, and the exuberance over rising housing prices. The first fundamental problem was the access to easy credit provided by a combination of a global savings glut and relaxation of credit standards. During the real estate bubble, commercial banks began to give out subprime mortgages to borrowers who were not credit worthy.2 Subprime mortgages are a type of mortgage that is normally made to a borrower with a lower credit rating. The borrower’s lower credit rating means that the average mortgage is not offered because…
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