Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
financial crisis 2008 in housing
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: financial crisis 2008 in housing
Today’s financial crisis has deeply impacted all areas of life not only in the United States, but also the rest of the world. Company giants such as Circuit City® and Merrill Lynch® have fallen victim to the financial crisis. One of the biggest industries the financial crisis has had an impact on has been the housing market. Everyday newspapers, journal articles, and television media cover stories regarding foreclosures around the country. To regain financial control of the world and domestic economy, one must begin with the housing market. There are various areas of the housing market, which allow for overhaul and maintain a prosperous future. Regulating bank interest rates and federal interest rates will reduce, if not eliminate the housing market crisis. Most importantly, it will set a new precedence for the housing industry to follow.
First, the banking industry must regulate their interest rates on existing customers. Mortgage brokers offered less than worthy credit home buyers subprime and adjustable rate mortgages (FactCheck.org, 2008). Adjustable rate mortgages, or ARM’s, are more of a problem than a solution. It allows people with poor credit or low income to purchase a home because it offers a lower interest rate initially. The interest rate rises every so often and eventually becomes unaffordable. This will eventually lead to foreclosure, impacting the banking industry that is tied to the United States and world economy. The initial premise of purchasing a home with an ARM was to sell the home with interest in three to five years, normally before the interest rate rises. The banking industry should completely remove the ARM as an option for first time and subsequent home buyers.
This will in turn force people who is...
... middle of paper ...
...nsive to borrow, it will eventually set precedence as the new “fixed” federal interest rate. Most importantly, keeping the interest rate at a moderate level will allow for economic growth in the long term.
In conclusion, the housing market is a very complicated industry in today’s day and age. One cannot continue to cast blame. Solutions are what is needed at this point in time. One solution given was to regulate bank interest rates and practices that have failed the banking industry and the consumer over the years. Another solution given was federal interest rate and government regulation over the banking industry. No one or two solutions that may give the housing market the boost it needs to regain its place in the financial world, but applying various solutions to the housing market will eventually repair and strengthen the housing market for many years to come.
The housing crisis in America is a major problem plaguing the United States' economy. Before a solution is formulated, one must consider the history of the market and the causes of the problem. And after a solution is formulated, one must present an idea for prevention of the problem for the future.
The new millennium brought with it a housing boom which had reached an unsustainable level (Pollock, 2011). Housing prices grew rapidly, and Baker (2010) noted a rise in house prices of over 70% from 1995 to 2006. For example, he noted average home prices in Los Angeles rose more than $400,000 over the period of 1995 to 2006 and approximately $519,000 in San Francisco. Prices around the country increased substantially as well (Baker, 2010). To encourage homeownership, banks promoted creative financing options (i.e. adjustable rate, interest only,...
This paper was written to give a general outline of some steps that can be taken to decrease the supply of housing , increase the demand of housing, and fix some of the issues that created the housing bubble. It is not comprehensive as there are more things that can be done, but I have tried to include some of the most relevant. This multi-strategy approach does not only help with the housing crisis, but also is instrumental in economic growth, and providing positive long-term incentives.
While no one likes the idea of turning people out of their homes, when you buy something you can’t afford, you have to return it. When you make a bad business decision, you have to take the consequences. Capitalism doesn’t work when there is no downside to risk – that downside is there to make sure that the system works properly. The most sensible, soundest and, ultimately, kindest solution to the debt crisis caused by the real estate bubble is foreclosure – expedient, easy, simple foreclosure. This is the best way for the housing market to grow again, which in the end will give people the opportunity to enjoy the piece of mind that comes from knowing they own a home they can afford and can really call their own.
This recent article criticizes the Fed's actions in raising the interest rate, and complains that the Fed has fallen behind in it's job. It discusses the plan for a "Neutral" policy and what the Fed has tried to do and not do to maintain this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares past decades to today's standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates.
Whenever an investment is made there is risk that accompanies it, the higher the risk of the investment, the higher the expected return. The same is true with the real estate market, and the mortgages banks issue. Each loan a bank gives out to a customers is an investment. To a prime borrower banks could loan them money at a stable, fairly low interest rate because these borrowers have a low risk of defaulting. However during the real estate boom banks were able to lend a large amount of subprime mortgages, mortgagees given to less than prime borrowers, with an inflated interest rate to make up the risk of these borrowers defaulting. “Overall, the subprime market was $600 billion in 2006, 20 percent of the $3 trillion mortgage market, according to Inside Mortgage Finance. In 2001, subprime loans made ups just 5.6 percent of mortgage dollars.” (Kratz, 2007) Banks were lending out to subprime borrowers at a lower teaser rate, giving borrowers an affordable payment because the interest rate was held artificially low until the teaser rate period was ov...
The 2008 financial crisis led to a sharp increase in mortgage foreclosures primarily subprime leading to a collapse in several mortgage lenders. Recurrent foreclosures and the harms of subprime mortgages were caused by loose lending practices, housing bubble, low interest rates and extreme risk taking (Zandi, 2008). Additionally, expert analysis on the 2008 financial crisis assert that the cause was also due to erroneous monetary policy moves and poor housing policies. The federal government encouraged the expansion of risky mortgages to under-qualified borrowers. Congress pushed for the support of affordable housing through extended procurement of non-prime loans for applicants with low income (Zandi, 2008). The cutting down of interest rates to low levels to supplement for technology bubble of early twentieth century and the effects of Sept 11, a housing bubble was created. This move facilitated individuals with poor credit to obtain mortgages in high percentage when lenders created non-conventional mortgages by offering mortgages with extensive amortization periods, loans with interest and payment alternatives such as ARMs (Angelides et al, 2011). Ultimately, interest rates rose again and many subprime borrowers stopped paying for their mortgages when their interest rate were reset to higher monthly payments. This paper will discuss the impact of the financial crisis as a result of subprime mortgages.
The housing industry has definitely been on the downswing since the summer of 2006. Home sales as well as house prices are down. Inventories of unoccupied homes have increased and there has been a recent decline in the employment levels of the housing industry. Many economists are of the opinion that we have not seen the bottom of the decline in the Housing Market', which is one of the most important factors of the American economy. Recent statistics indicate that there is an increase in mortgage applications; however, at the same time there is a decrease in permits and new-home startups that could affect the economy for several years to come. In addition, another disturbing trend is the increase in home building cancellations during the last 3 4 months.
The housing boom has caused the house prices to rise continuously up to the point of Great Recession. Deregulation allowed people to buy houses with a very small down payment, meanwhile the value increased so quickly, that a person could gain money on a turnaround in a matter of months. Many people took advantage of this opportunity and the housing market collapsed. Although weak regulations are one of the major contributors, it is important to mention the lack of financial education among
In order to understand the concept of financialization and the housing market on the global and local level, one must know that there is a global pool of money that is simply the worlds savings bank. In 2000 the pool had $36 trillion and has since doubled in size (Blumberg 2008). Its most recent profit increase was a result of developing countries and cities such as India, Abu Dhabi, and China making money. This doubled the cash pool available for investments, but left fewer solid investments for the taking. The solution was residential mortgages and the US housing market. The investment managers thought the low-risk high-return investment in the housing market was a good, stable idea. The glo...
Monetary policy is always intended to either increase or decrease the amount of money in circulation in the economy. Reducing interest rates encourages borrowing thus increases the amount of money in circulation. It is however challenging when the interest rates are...