This website uses cookies to ensure you have the best experience. Learn more

The 2008 Housing Crisis: A Brief Overview Of Causes

2200 words - 9 pages

The 2008 Housing Crisis: A Brief Overview of Causes
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).
In the U.S., a housing bubble began to emerge just after the turn of the 21st century. In these years, the economy was in great shape, interest rates were low, and consumers were ready to buy, which drove up real estate prices very quickly (Trehan 2007). Houses were viewed as an excellent investment by home buyers and lenders alike. However, the bubble eventually burst, and housing prices dropped drastically, leaving homeowners unable to afford their mortgages. Financial institutions were hit even harder, with many on the verge of bankruptcy, or failing because of the underwater mortgages (Melicher & Norton, 2014, p. 44).
Leading to the bursting of the housing bubble were three major contributors: a cultural change in American society, low interest rates, and subprime lending by financial institutions. There is also speculation that the Federal Government played a part in creating the bubble that would eventually burst. These events coincided to create the 2008 housing crisis. Many people ended up with homes they could not afford, and lending institutions ended up with homes that were underwater.
Cultural Change
At one time, Americans were known as people who saved money. This was true during and after WWII, when people began purchasing government savings bonds at rates between seven and eleven percent (Garon 2012). The savings rate by the 1960s was seven to eight percent (Melicher & Norton, 2014, 168). This was a period when people would save to purchase wanted items, like cars and household goods. If you didn’t have the money to buy it, you couldn’t afford it, therefore, it wasn’t purchased. Credit cards were not common during this period. First appearing in 1950, these were used mainly by the wealthy for convenience instead of carrying cash or a checkbook (Durkin & Price, 2000, p. 624).
During this time period, homeownership typically required a 20 percent down payment (Melicher & Norton, 2014, 168). Lending institutions were very careful about whom they lent money to, and credit standards were high (Melicher & Norton, 2014, 168). Melicher & Norton (2014) called this the “save now, spend later” philosophy, and it would change in the coming years (p. 168).
Attitudes about spending changed drastically. At this point, more people had access to credit cards because credit card companies stopped limiting their customer base to the wealthy, and began issuing cards to people with moderate to low incomes (Garon, 2012, CNN...

Find Another Essay On The 2008 Housing Crisis: A Brief Overview of Causes

The never-ending financial crisis of 2008

762 words - 4 pages Since it began in 2008, the US has faced what is being called the “great recession.” It is 2013, and it is clear apparent that it is a “recession” longing to be cured. Through the works of Putnam, Sum et. al., Wisman, and Colander, we can better understand this crisis and look for the best way to get out of it. To begin, Robert Putnam describes what has occurred in the U.S. over the past several decades. He states that over the past several

Causes of the 2008 US Recession

1821 words - 7 pages Many people today would consider the 2008, United States financial crisis a simple “malfunction” or “mistake”, but it was nothing close to that. Contrary to what many believe, renowned economists and financial advisors regarded the financial crisis of 2007 and 2008 to be the most devastating crisis since the Great Depression of the 1930’s. To make matters worse, the decline in the economy expanded nationwide, resulting in the recession of 2007

The Root Of The Housing Crisis

1001 words - 4 pages taking care of them. Making matters worse, bankers give Realtors incentives to steer buyers away from the foreclosed properties by offering smaller commissions than the going rate for other homes. Is it any wonder that the inventory of foreclosed homes continues to grow? There is a way out of this mess, but it will require exactly the kind of short-term pain that everyone in government has been striving to avoid since the foreclosure crisis

The 2008 Financial Crisis

1529 words - 6 pages introduction 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

Financial Crisis of 2008

2303 words - 9 pages The Financial Crisis of 2008 was the worst financial crisis since the Great Depression, however a lot of American’s want tougher law of be enforced against executives and companies they think started the mess (Jost/Misconduct). Civil charges have been brought up against major banks for misleading investors, but a federal judge rejected a proposed settlement saying it was too lenient (Jost/Misconduct). The flood of subprime mortgages roiling the

The 2008 Financial Crisis

1206 words - 5 pages Introduction The current financial crisis happened on 2008 and lasted for quite a while. It caused different levels of economic recessions in varying regions all over the world. Government officials of financial institutions and economists try to rectify the financial mistakes and lower the risk of future financial crisis. This essay will take United Kingdom financial system for instance, analysis its financial regulations. Firstly, it gives

The 2008 Financial Crisis

2612 words - 11 pages The 2008 financial crisis witnessed how fragile financial institutions and the whole financial system could be. In the U.S., lots of banks touched the edge of failure, requiring extensive assistance from the government. Some received bailouts in forms of capital injection or loss sharing agreement, while others entered shotgun marriage with healthier financial institutions arranged by Federal Deposit Insurance Corporation (FDIC). Among banks

The Housing Crisis

1001 words - 4 pages “One out of every two hundred homes will be foreclosed every month, making 205,000 new families enter into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which cause a ripple of problems. President Obama has been brave to take office in a time of need. Creating plans like the Recovery Act is a wonderful start in fixing

The Housing Crisis: A Result of Sub-Prime Adjustable Rate Mortgage Loans

1159 words - 5 pages couldn’t repay the lenders. The government is ready and willing to do whatever it takes to fix the housing crisis and their swift efforts so far should be praised. Certain protocols, such tax rebates to homebuyers, certainly tided over the crisis for a short period, however it’s by no means a final solution. For one example, look at HR 3221, more famously known as the Foreclosure Prevention Act of 2008. Filled with a number of different foreclosure

A Brief Overview of Obsessive Compulsive Disorder

1661 words - 7 pages A brief overview of OCD....... Obsessive compulsive disorder is a form of an anxiety disorder. It is the condition in which someone is flooded with persistent thoughts called obsessions and in order to control those thoughts they engage in repetitive behaviors or mental acts called compulsions. Article 1 summary....... Patient adherence predicts outcome from cognitive behavioral therapy in obsessive compulsive disorder This was an

Hormonal Arthropods: A Brief Overview of Moulting

1726 words - 7 pages source of E[5]. Upon contact with the haemolymph (a combination of blood and tissue fluid) within the circulatory system E is converted to its active form, 20-hydroxyecdysone (20E), by a P450 enzyme[4]. This causes the epidermal cells to secrete moulting fluid, which contains a mixture of enzymes such as proteases and chitinases. The moulting fluid degrades the exo- and endocuticle, and the digested cuticle is reabsorbed to create new cuticle

Similar Essays

The 2008 Housing Crisis: A Brief Overview Of Causes

1119 words - 5 pages 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 by Businessdictionary.com (n.d.) as a “temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. As with most economic bubbles, it eventually bursts, resulting in a

Causes Of The 2008 Financial Crisis

972 words - 4 pages whilst lowering the interest rates. This led to the housing bubble deflating. The low rates were worsened by the modern financial instruments, for instance collateralized debt obligations (CDOs) and the MBS. The Federal Reserve responded to the crisis by lowering its major federal funds rate, in order to provide extra liquidity to the financial system, offered direct credit lines to a wider variety of financial institutions and stretched out the

A Brief Overview Of Economics Essay

980 words - 4 pages The word ‘Economy’ is derived from the Greek word ‘okinomous’ which means one who manages a household. Economics is the study of how society manages to run its scarce resources. Scarcity means that society has limited or finite resources and therefore cannot produce all of the goods and services people desire to have. God has created man with innumerable desires and wants. So, unlimited wants surround man throughout his life without having an

The Sub Prime Mortgage Crisis Of 2008

1155 words - 5 pages the unemployment rate is down to 7.4%. Housing prices are also rising again. The economy is not back to where it was in 2007, but it is improving every day. Conclusion The Sub-Prime Mortgages Crisis has had a great effect on the economy. It was a manmade crisis and it could have been avoided. Lack of ethics played a large role in the creation of this crisis as they were the root of most of the causes. By making unaffordable lending illegal and by