The Housing Market Crash

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 crisis that stressed lots of economies and financial systems originated in US mortgage lending markets. First signals of possible problems came in early 2007, when the Federal Home Loan Mortgage Corporation announced about its inability of purchasing high-risk mortgages, after what New Century Financial Corporation - a leading mortgage lender to riskier customers - filed for bankruptcy (John Marshall, 2009). In the research paper of 2009 he claims that source of the crisis emanated from the rise of house pricing, called housing bubble. “US house prices rose dramatically from 1998 until late 2005, more than doubling over this period, and far faster than average wages. Further support for the existence of a bubble came from the ratio of house prices to renting costs which rocketed upwards around 1999..” (John Marshall, 2009, p 10). Housing bubble was also fully analyzed by Dean Baker in his research “The housing Bubble and the financial crisis” in 2008. Dean noticed that, by the middle of 2007, house prices had peaked and began to head downward.

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.

The Housing Disaster and subsequent Great Recession of 2007 were predicted by several well-known Economists, although it still caught a majority of the Country and World by surprise! I wasn’t prepared for this economic shock either, as I had just finished real estate school and passed my State and National licensing exams during the previous year. It was a tough start to a real estate business but proved valuable in the lessons I learned during those next several years.

Once the US housing market collapsed, it created a credit crisis and crunch in the wider financial markets. Due to the complexity of CDOs many people had no idea how much they were really worth. Many of the CDOS were worthless and it was almost impossible to find the value of them (7). This led to a moral hazard problem whereby there was an overall caution of banks because many had no idea if they were even bankrupt. Inevitably, the interbank lending system crumbled whereby some banks stopped lending to each other and to corporations altogether or only lent with very high interest rates. Many banks who relied on interbank lending for money were heavily affected by this including Northern Rock. Inevitably, depositors of these banks become dubious of their banks financial situation and were provoked into withdrawing their money.

The life that homeowners were accustomed to, the quiet enjoyment and peace of mind of homeownership suddenly became a nightmare. During this time America was faced with the weakest economic downturn it has experienced in more than eighty years. As the real estate market collapse was in high gear, most Americans were experiencing layoff from jobs. People were losing their jobs at an alarming rate and the unemployment rate hit double digits. Families were forced to downsize and cohabitant with families or be faced with the harsh reality of homelessness and living on the streets.

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.

A mortgage meltdown and financial crisis of unbelievable magnitude was brewing and very few people, including politicians, the media, and the poor unsuspecting mortgage borrowers anticipated the ramifications that were about to occur. The financial crisis of 2008 was the worst financial crisis since the Great Depression; ultimately coalescing into the largest bankruptcies in world history--approximately 30 million people lost their jobs, trillions of dollars in wealth diminished, and millions of people lost their homes through foreclosure or short sales. Currently, however, the financial situation has improved tremendously. For example, the unemployment rate has significantly improved from 10 percent in October of 2009 to five percent in

The current housing market is experiencing another large, daunting bubble that I fear is leading to another burst and market crash. The “Baby Boomer” Generation and the “Millennial” Generation are currently experiencing a great disparity gap between the two of them, both in pay and in purchasing power which directly affects the housing market. As the Baby Boomer Generation begins to retire and move on from where they currently live, the housing market will suddenly experience a boom in available housing. The issue then becomes that the Millennial Generation does not currently have the economic buying power to purchase these houses. This issue is currently visible in the Bay Area where housing is at an all time high. Houses are currently being listed as Baby Boomers want to move out of the higher cost of living areas into lower cost of living areas when they retire, but their current listing prices are prohibitively expensive at the current wages the new buying generation makes. These houses are being listed for longer periods of time, many homes listed over a year, with no successful bids.

“Those who cannot remember the past are condemned to repeat it.” These words were first written by Italian philosopher, George Santayana. The meaning is all but spelled out for the reader, the past is important, it deserves its due - don’t brush it aside, don’t pretend it didn’t happen – to better build the world of tomorrow, you need to remember (and account for) the mistakes of yesterday. The mortgage crisis, and all that it lead too for our economy, back in 2007, is an event that should never be forgotten… lest we inadvertently doom ourselves by going through it all over again. Today, of course, the situation has significantly improved; our nation managed to get over this rather sizable hump and bounce back from it (not fully healed, but certainly better than we were only a few years ago). That’s not good enough for me though; in order to truly overcome this event (that many have already put behind them and forgotten about, myself included, prior to writing this essay) and push ahead, we need to go over how it happened in the first place. Therefore, today I’ll be talking about the mortgage meltdown crisis, suffered by the United States and felt around the world, of 2007; I will cover how the crisis actually happened, the lessons learned from the collapse / the silver linings of the collapse, and how real estate buyers are intelligently learning from the past in order to benefit today.

The economic crash of 2008 was a difficult time for all of the people around us. This situation has impacted our country and what is around even to this day. It was a tough time for a lot of families and big businesses. This stock market crash was one of the worst the United States had ever had. Even to this day we are still trying to repair it what went down. Like the employment of jobs, the cost of our products, and homes that were taken away from families. The economic crash came from nowhere and it was a shock fro mainly families, especially the middle and low income families. This took many homes away from them and the job eventually leaving them with nothing. This had also hurt many foreign countries on their way, did trade and their investments. Many housing companies going down with this and also the way banks were running. Why and how did this all happen? This is one of the biggest economic crash in the United States that is still in the process of being repaired.

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.

In “The Life of Reason,” novelist George Santayana wrote the now-famous phrase, “those who cannot remember the past are condemned to repeat it.” That holds true for housing crises, specifically the one in 2008. Less than a decade after the world economy nearly collapsed, the vast majority of us still don’t understand what happened or why it happened. Some of us do know, but choose not to care. Both are equally dangerous.

“Stock Market Crash.” PBS, Public Broadcasting Service, www.pbs.org/fmc/timeline/estockmktcrash.htm. Accessed 13 Mar. 2017. To fully comprehend the logistics of the Great Stock Market Crash of 1929, one must recognize the basics of the stock market. “Capital is the tools needed to produce things of value out of raw materials.” At the time, capital was mainly represented as stock, and corporations owned the capital. Thus, whoever owns a share of the stocks owns a part of the corporation. In the 1920s, a boom in stock value occurred, so investors purchased a multitude of stocks. Yet, the mirage faded in 1929, and stocks swiftly crashed. As a result, banks, which had invested deposits in the market, lost depositors’ money;the banks attempted to