1980s Housing Crisis

It is true, that the United States Housing Market can be “unpredictable, volatile and cyclical.” I believe it is crucial to familiarize ourselves with the past mistakes so that we can set up precautions and measures to ensure that another housing disaster does not occur. In the 1980s, we were faced with what was called the Savings and Loan Crisis. According to Kenneth J. Robinson, author of his article, Savings and Loan Crisis, “In the 1980s, the financial sector suffered through a period of distress that was focused on the nation’s savings and loan industry.” As the inflation and interest rates rose in the late 1970s, many S&Ls began to experience huge losses. Even though the rates they paid to attract deposits rose, the amount earned on …show more content…
history. Since expansion is followed by an economic recession, when the stock market crashed in 2000, there was a shift in dollars going away from the stock market into housing. This is what is known as the housing bubble. There was plenty of “cheap money” available for loans so naturally, people took advantage. When they saw the price of housing increase, they wanted in on the action. They took out these cheap loans to try and flip houses and make a living. The housing market peaked in 2006. Subprime loans began to go into default which was the first sign of trouble. Once credit markets froze in the summer of 2007, things deteriorated quickly. Interest rates on corporate and consumer loans flew upwards (Tom DeGrace, …show more content…
As stated above, the federal government played a helping hand in the S&L crisis because they allowed banks to loosen the reigns on loan standards for loan seekers. Now that low and middle income families are able to take out several housing loans at little cost, they do so because they do not see the problem with this in the future. Because they are taking out huge loans and since they are lower in income, they are less likely to be able to pay off their huge loans in the long run. I believe the government should have less of a hand in this process. If they had not lowered the standards for loans, people would not be as incentivized to take out loans that they cannot afford. Obviously, now that this crisis is over, the government can see what a mistake this was. However, if the government was not as involved as they were in 2008, the standards for loans would not have been compromised and this crisis may not have even