How The Housing Bubble Inflated ?
It is believed that during the housing bubble, inflated home appraisals were the norm. This was primarily done to ensure that homes would end up looking more expensive on paper. So that borrowers would have to take bigger mortgages, this would result in bigger commissions to the agents and lenders. |
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Many experts and people assumed that the housing bubble would not burst because the nation's economy was growing, the interest rates were low and the unemployment was at an all time low. However, after reaching the zenith in 2005, the housing market started falling.
The housing bubble inflated for a simple reason. The unemployment was low. This meant that more number of people was gainfully employed. In addition, banks were giving mortgage at low interest rates. This resulted in people scrambling to buy homes which, in turn, further pushed the prices of the homes resulting into a housing bubble that kept growing at a fast pace.
However, the rosy outlook did not last long. It was something that was bound to happen. The housing bubble burst after the macroeconomics of the country changed significantly. The economy started weakening resulting in job losses. This started a series of defaults and foreclosures across the US. Overnight, values of homes fell. Suddenly something that was seen as an asset turned into a liability that even low interest rates could not fix. And, the housing market in the US came tumbling down with homeowners, banks, real estate developers and everyone else involved in the real estate sector suffering tremendous losses.
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