The Housing Crisis Of 2008

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.

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 Federal Government needs to make sure to enforce strict guidelines on who can and cannot be accepted for a home loan, and not allow big investors to borrow excessive money at low interest rates to inflate the investor’s financial advantage. If the government starts allowing lower standards on mortgages, we are going to end up in the same catastrophe once again. In an article written by U.S. News and World Reports entitled Should the Federal Government Provide Support to the Mortgage Market?, the Federal government and the President attempted to get involved with the housing market. The passage implicated that Obama wanted to do away with federally funded conglomerates Fannie Mae and Freddie Mac and implement another type of government assisted program ("Should the Federal Government"). The program would prevent the mistakes made by Fannie and Freddie which created the original “housing bubble burst” ("Should the Federal Government"). One of the Senate bills suggests the government create “a new agency, the Federal Mortgage Insurance Corporation to replace Fannie and Freddie” ("Should the Federal

Owning a home is emblematic of the “American Dream”. Unfortunately for many Americans, especially Millennials who are entering or have entered the job market, the thought of owning a home still remains a dream. Our unstable job market and fragile economy has made this aspect of the “American Dream” quite difficult, and many Millennials are more content with landing their dream job than owning a home. The wealth gap between the rich and the poor has prevented the poor from attaining the Dream since the Dream has always been within the grasp of those well off. In our modern society, the same unfortunately is true.

In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined as “a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices” (businessdictionary.com 2014). When the bubble bursts, the result is a quick decline in home prices (businessdictionary.com 2014).

The desire for home ownership is something embedded in our DNA. Claiming property and owning a house is a critical part of the “American Dream.” Home ownership represents more than just a place to rest your head at night. Your home is the environment that serves as a setting for your journey through life. It’s the place of your children’s first steps, family birthdays, barbeques, amongst many other significant events. Your home is the backdrop that describes you and your family. Although many American’s were financially hurt by the trillions lost in the home equity market during the housing bubble, there is and will always be a desire to own a home. The most vital part is that American’s who lost their homes during the crash, learn from their past, so that they do not repeat a foreclosure.

In his essay “The Mansion: A Subprime Parable,” Michael Lewis uncovers the reality about the American real estate issue. A great number of Americans have obtained homes that they cannot afford. Banks have loaned out home loans that individuals cannot pay back. Some days it seems as if half of the nation is financially submerged. It is no doubt that certain home loan specialists, and numerous huge firms can be blamed for this crisis, yet they cannot be blamed for everything. Most of the blame, Lewis argues, has to be given to us, the citizens. The fact of the matter is that Americans are greedy, we desire luxurious things that we can show off to everyone around us to prove how well we are doing. This is true especially when it comes to housing. Numerous have been brainwashed into accepting that if a major house implies achievement, then the

In fact, “During the last ten years, the nation’s rate of homeownership has steadily fallen from nearly 70 percent down to just over 64 percent” (Romerdahl). Homeownership has been seemingly inseparable from the American Dream, yet statistics are now showing that less people are interested in owning a home. Until recently, government intervention has been raising the percentages of homeowners in the US, but percentages have been steadily falling even with lower interest rates and continued effort from the government. This evidences that not only is the American Dream changing, but it is not clearly defined in the first

After the bursting of the United States housing bubble, many homeowners found themselves in a dire situation. Following the dot-com bubble burst, the Federal Reserve slashed interest rates, meaning credit was cheap. Lower lending standards also meant that consumers with not-so-great credit were suddenly able to attain adjustable rate mortgages with a minimum of money down and easy initial terms. In 2004, approaching the pinnacle of the housing market’s climb, former Federal Reserve Chairman, Alan Greenspan, actually encouraged Americans to take out adjustable rate mortgages. Then, as 2006 came, Americans saw the housing market reach its peak and subsequently plummet downward. As a result, it became difficult to impossible forthe borrowers

Until every home loses value, buying a home will continue to be a good investment for those who can’t buy stocks or bonds. Purchasing my home was a huge milestone in my life as well as an investment I could make for my future. Adalberto Aguirre also believes that “For many Americans, homeownership is synonymous with success, independence, and the achievement of the American Dream.” Homeownership is seen as a pathway to aspects of the American dream; for instance, the ability to pay for a college education, providing start-up capital for a family business, or funding retirement plans (6). Owning a home, like earning a college education, is something I thought we are all supposed to want for ourselves, friends, and family. Helping others attain the American Dream certainly took a backseat to profits in the minds of many mortgage brokers and lenders during the 2000 housing boom.

Homeownership is a double-edged sword. It is the “American Dream” to one day own a house. Compared to their predecessors, Millennials are seeing the advantages and disadvantages of homeownership at an earlier age.  These early generations believed owning a house was the cherry-on-top to being an all-around American and achieving the “American Dream”. As a cynical generation who grew up with information at our fingertips and the world falling around us, millennials see homeownership differently. “The cautious and conservative approach to home buying displayed by millennials is driven by the fact their outlook on life was shaped by a number of bad things when they were young—the terrorist attack on the World Trade Center in 2001, the 2008 financial crisis, the housing bust with mass foreclosures and a weak recovery that has so far provided incomes below that of prior generations” (Stowe England, 36). We learned that the world was not fair and that it is time to redefine the “American Dream” to reflect our current economic society.

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.

The Big Short is a movie that discusses the housing market crash in 2008. As you may know, the banks, the mortgage brokers, and the consumers were all affected by this collapse. On each level of the system, there were things that went wrong and that could have been changed that could have prevented the failure of the housing market.

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