The Effects Of The Housing Bubble In The United States

The housing bubble in the US that started in 2008 was a lesson to many countries and economies as a housing bubble affects many parties and could ultimately lead to a nationwide recession. What happened in the US was, the demand for real estate rose steadily over decades and homeownership was known as the “American dream”. Credit and mortgages were readily available and a very wide range of customers were free to obtain mortgage facilities. As the demand for real estate shot up, so did the prices of real estate and seeing the demand, banks and finance companies offered more and more loans and mortgage facilities. This placed money in certain irresponsible homeowners as well who defaulted their mortgage payments.

The real estate prices however could not continue to rise continuously and came to a stop and later started declining putting the homeowners and house flippers in a lot of trouble. The bubble that was created around the real estate business burst as the prices suddenly decreased and the property managers and other Melbourne property could not gain profits by selling the property they bought at a lower rate estate. As a result the mortgages fell due and many homeowners defaulted credit. This put the banks and finance companies in a fix as they could not recover the loans provided. For certain banks, subprime mortgages were the main business and as homeowners defaulted payment, they collapsed in no time.

One of the biggest reasons for the housing bubble is the low mortgage interest rates that prevailed for a very long period of time in the US. Even though the prices of property shot up due to increases in demand and the canvassing done by the buyer agent Melbourne, the purchase of land and immovable property were made cheap as the mortgage interest rates were at a very low level in the US. Another reason is the lowering of short term interest rates by the Federal Reserve in the years 2004 and 2005. There was too easy access to credit and the property owners use the facilities for speculator activities in the financial markets.

Following the financial crisis that took place in the period of 2006/2007 the US economy experienced an economic recession in year 2008. Unemployment rate increased and so did the inflation rate whereas the GDP of the country was falling marginally and showed no significant increase. Certain well-established banks like Lehman Brothers collapsed as a result of the economic recession that followed and the burst of the housing bubble created a huge price inequality in real estate prices all over the country.