The 2008 Housing Crisis: A Brief Overview of Causes Essay examples

The housing market had started to decline in 2007, after reaching peak prices in 2006. There was an extremely high amount of subprime mortgages that had been issued in the early 2000’s. Homeowners could no longer afford to live in their homes, payments started going to default, and foreclosures started to rise. According to The Washington Post, there were five contributing factors to the housing market crash: low-doc loans, adjustable- rate mortgages, equity line of credit, more money down than needed, and mortgage insurance.

The year was 1950 and people wanted to have a new and improved way to pay for things. In 1949, Frank X McNamara went out to eat with some of his friends and had a bill quite large, so when he was going to pay for the meal he forgot his wallet, in embarrassment he called his wife from the dinner to bring his wallet. From that experience, he never wanted to have that happen again. So he invented a card that could be used to buy things like shoes, clothes, large appliances and can even be used at different locations like gas. So in the 1950s, people used credit to buy expensive things and thus the credit card was born.

The past decades have dictated our economic policies; the housing market was fed by the politicians instilling the thought that every person should be a homeowner. According to a speech by President William Clinton in 1995, he boasted about making homeownership a reality, “The goal of this strategy, to boost homeownership to 67.5 percent by the year 2000, which would take us to an all-time high”(Wooley). As a result of political ploys like this, banks and lending institutions came up with products such as the 107% financing, interest only loans, negative amortization programs which allowed loans to start at a 1% interest rate, sub-prime credit packages for those homeowners only 1 day out of bankruptcy, and the no document qualifier

The housing bubble went into full effect by December of 2007, and is seen to be the leading cause of the Great Recession. With the lowering of interest by mortgage associations, lead to those who had poor credit to obtain a mortgage. Those

During the first half of the past decade, the U.S. economy experienced a housing bubble in

     With religion playing an important role in the average Americans lives, consumerism began to grow in the white and blue-collar workers. Their families started to spend extra cash instead of saving it. Washing machines, dryers, and new cars became commonly bought items. The Homeowner who needed some extra cash, but couldn’t work enough hours to purchase that item when he needed it, started to use personal credit. This began the craze of credit cards. ”The Diner Club” introduced the first credit card in 1950: By the 1970s the ubiquitous plastic credit card had revolutionized personal and family finance”(Henretta, pg.790). The awareness of addition free time was aware

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).

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.

Homeownership in the U.S. hit 63.4 percent in the second quarter of 2015, the lowest rate since 1967. This has many people worried and multiple industries pitching theories, hoping to make sense of the decline. Does the blame lie with the stringent requirements following the housing market crash? Are people still weary of the financial responsibility in a still uncertain American economy? Or are some critics right, is homeownership culture changing, are Americans giving up on the America Dream?

In the period between the years 2005 to 2009 the demand for housing changed drastically. Financial institutions were involved in some more deceitful lending practices. They began offering what are known as adjustable-rate subprime mortgages, which is when an institution gives out a loan to someone with a lower credit score and are thus a higher risk. With the low-interest rates being offered, an ever increasing amount of people took out loans in hopes to purchase a home to make a profit. This caused the demand for houses to skyrocket, which in turn increased the prices. With prices increasing, more and more people were speculating that the costs of houses would increase indefinitely, and with ease of access to these mortgage loans

Well how did the Housing crisis happen in the first place? Well what banks were doing was looking for fast short term profits. To get these profits banks had to give out “sub-prime mortgages”. Sub prime mortgages are basically loans given to people who would have a rather hard time paying back the cash. Because of this banks were able to increase interest rates. When the banks raised the interest rates what they did was create a hypothetical bubble that was bound to burst. When this happened banks began to fail.

The cause was the uncontrolled number of sub-prime mortgages that were driven by historically low interest rates that flooded the market. Eventually many of these unsecure mortgages started to default due to the inability of borrowers to pay. Leading to a banking and credit crunch.( Holt J.(2009). A summary of the primary causes of the housing bubble and the resulting credit crisis: a Non-technical

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.

Before 2007 borrowing money for a home used to be extremely easy because loans were very easy to obtain from banks regardless of debt. Housing prices continued to increase because money was quickly accessible from banks. Too much money was too readily available. Every part of this financial lending fiasco culminated to a jarring decline from 2007-2008. At that time America suffered a financial crisis that some economists parallel to the Great Depression. Banks were unable to loan, the Stock Market crashed, and many Americans lost their jobs. At that point there was nothing left to do except recover.

The housing bubble was also considered as one of the causes of the subprime crisis. A housing bubble is caused by tremendous increases in the real property valuation until reaching unsustainable levels relative to incomes and other affordability indexes. The perception of generations of consumers believed that not only would the values of home not decline, but that the home values will continue to rise in the future.