The Housing Market Boom and Bust
In June of 2005, The Economist reported that residential property value had risen more than thirty trillion dollars over the past five years in developed economies (The Economist ). This increase in value pushed that number to over seventy trillion dollars and created what was one of the biggest housing bubbles in history. Housing prices had never risen so quickly before all over the world (The Economist ). The demand for housing suddenly outweighed the supply.
The National Bureau of Economic Research has said that what our economy has gone through in the last two years is one of the worst recessions we have seen in the United States. They have reported that this recession started in December of 2007 and lasted until June of 2009 (National Bureau of Economic Research).
As reported by the Federal Housing Finance Agency price index, housing prices rose by fifty three percent between 1996 and 2006 (Glaeser, Gottlieb and Gyourko). Economists measure home prices based on how much it would cost to rent the house. During this time frame America’s ratio of prices to rent showed that the housing market was thirty five percent above the average during the years of 1975-2000 (The Economist ). The chart to the right shows the ratio of house prices to rent between the United States, Britain and Australia (The Economist ).
How did prices get so high on homes in the first place? In a study done by the National Association of Realtors, it was found that the median down payment of all home buyers decreased from twenty percent in 1989 to only nine percent in 2007 (Cauchon). This means that home buyers borrowed more money and could put down less of their own money on a home purchase (Cauchon). In 2007 a new trend came into play where almost half of all new home buyers used a “no money down” loan for their mortgage (Cauchon).
I believe that if the United States had had tighter regulations on lenders, along with...
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