Housing Market Bubble Case Study

1229 Words 5 Pages
Register to read the introduction… In 2005 over 1,283,000 family homes were sold throughout the U.S. housing market according to U.S. Statistics. This was a larger number of houses sold compared to previous years with a range of 609,000 houses being sold per year. This was expansion, with lower interest rates, economic booms, and most people living in houses they couldn’t really afford if you looked into their finances. This is what later created negative home equity balances, and forecloses along with many evictions. Before the collapse of the housing bubble more and more people thought at least that they were “living the American …show more content…
During this expansion of the market Federal Reserve Chairman Alan Greenspan was worried that the country could face a recession or server downturn in the economy. From this information the Federal Reserve began cutting interest rates down to as low as 1%, and kept them at this low rate until 2004. This was a policy taken by the Federal Reserve to keep money in the economy through cash and savings. The interest rate was also kept low, because those with the adjustable mortgage rates, which fluctuate with the market. This also kept more spending in the economy to keep the economy afloat according to the economic principals behind this decision. However instead of keeping interest rates low, the Federal Reserve could have raised the interest rate to prevent such inflation from occurring in the future and promote more saving then spending which could have then prevented some of the financial loss going into the future. After 2004 the Federal Reserve began increasing the interest rate by 0.25% per year from there on after until the economy would recover. However this would not be enough policy to suffice through this economic …show more content…
still wanting to keep interest rates down and keeping a deregulation attitude towards the banks and economy this was a recipe for disaster. Eventually government bailouts would come into the picture to fix things, which will also be discussed later in the paper. While the United States banking system and Federal Reserve had a deregulation policies, which does stimulate bank competition and creates lower interest rates, and better rates for borrowers. This also can hurt the economy as the U.S. has seen in recent years. With the competition between banks and pressure to give more mortgage loans there was a lot of revenue and potential opportunity for banks who lent subprime loans. Underwriting policies also were

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