Housing Market Crash Essay

Sir Isaac Newton could not have said it any better; “What goes up, must come down”. These are savvy words to live by, and ring particularly true for the real estate market. A real estate crash surely does not happen overnight. So why is it that when the housing market crumbled about a decade ago it took everyone by surprise? Many factors contributed to this phenomenon, but blame is shared between the financial institutions that lended money carelessly, and with little scrutiny when providing mortgages, as well as on the government whom guaranteed the lenders’ potential loses. The real estate market can easily be compared to a bubble. The housing market bubble grew, and grew, until all the slack was gone and then it popped, leaving many less than amused. During the early stages of the housing market bubble, lenders offered short-term rates which increased the demand for housing. Contractors went on overdrive building new housing developments, and since the houses were selling so rapidly, …show more content…
With the increased demand for housing, existing house renovations and the built of new homes, the price dropped considerably. The houses that had existing mortgages were no longer worth what the current owners acquired them for. The lending institutions began offering mortgages with low payments at the beginning of the loan’s life making it more attractive to purchase a home right then and there. These financial institutions then proceeded to lower their lending standard to bring more buyers and providing easier access to credit. The new potential buyers did not realize that those promises came with a high cost. These mortgages also came with high yielding mortgage bonds. (Nielsen, 2012) Having more customers pushed the real estate experts to have shorter relationships with the borrowers allowing them to take unnecessary risks. The pricing gap market fueled unrealistic home