The housing market bubble has caused some significant changes in our economy based on the ideas of supply and demand, government and the market, and demand shifters.. In the report I will discuss the following items
- The housing market prior to bailout
- Causes of the housing market crash and the bailout
UNITED STATES HOUSING MARKET BUBBLE DEFINED
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. “Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation's mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increase the risk of a nationwide recession”, (Bajaj, 2007). HOUSING MARKET PRIOR TO BAILOUT
Millions of homeowners resided in houses then that were worth far more than when they were purchased. Millions more saw a jump in their perceived net worth, enticing them to buy, sell, and then buy new homes again amid the boom. “Homeowners took advantage of low interest rates to boost their access to credit, borrowing against the seemingly ever rising value of their homes for home improvements, college tuition for their kids, a new car, and other items” (Weller, 2006). The opportunity cost for homeowners during this time was high. This debt-driven consumption helped spur the U.S. economy out of the recession of 2000 and then underpinned the steady economic growth since March 2001. “So powerful were the effects of the great American housing boom that home prices swiftly outpaced the growth of rental prices across the country—a historic first—while boosting job growth in retail, construction, and other housing-related businesses”, (Weller, 2006). For a time, it seemed as the supply and demand of houses would continue since it contributed to...