Lisa Burkart-Uv Analysis Of A Housing Bubble

Superior Essays
Analysis Of A Housing Bubble
Conrad M. Landis
ENG103
March 17, 2014
Lisa Burkart-Uva

Analysis Of A Housing Bubble The late 1990 's introduced the dotcom era to the world. Hopes were high as businesses were seemingly being created overnight. The rush was on by the public and investors alike to sink their savings into the promise of these start up companies. Technology was advancing and all appeared well in the world of investing. Companies would go public on the stock market and values would rise enticing everyone who had ever dreamed of profiting from the market to get in while the getting was good. Unfortunately, many were unaware of the rapidly inflating internet bubble that was growing everyday as those prices increased.
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Although some savvy investors did manage to capitalize on the opportunity, most were not so fortunate. Upon realizing the devastating financial downturn everyone was facing, the Federal Reserve Bank implemented a solution. A solution that years later would only prove to be a disaster for the American people. The strategy introduced by the Fed, they hoped, would reverse the economic state of America. Citizens and banks alike had to learn to be trusted by each other once again. This led to the decision to lower the federal funds rate. Investopedia.com explains this rate as, “ The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight.” It then goes on to state, “ The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation” (Federal funds rate, n.d.). This is particularly significant due to borrowing between banks. As part of the solution to the crisis, mortgage loan interest rates were lowered to provide people affected by the internet bust a chance to get back on their feet and into a home. As banks profited from the loans being issued they in turn borrowed from larger financial institutions in order to …show more content…
Homes become too overpriced for new buyers and eventually the bubble pops and housing prices fall”, (Housing bubble, n.d.). The reason behind this is that buyers are now attracted to no down payment low interest loans. Peter Wallison, a writer for the New York Times states, “Even buyers who could afford down payments of 10 to 20 percent were attracted to mortgages with 3 percent or zero down. By 2006, the National Association of Realtors reported that 45 percent of first-time buyers put down no money” (Wallison, 2014). This results in a significant increase in home values. When market prices are driven up buyers soon become reluctant to purchase homes and instead opt for renting. The “bubble” can then be

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