Why is the housing market bad?
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I know it's something to do with.. mortgage companies giving loans to buyers who cannot afford to pay them back.
I'm sure there's more to it than that though.. Can you explain it in a simple way, yet somewhat thoroughly. I also need sources though. So if you know where I can find information about it..
And I've alread googled it..
Why is the housing market bad?It started because of a bubble created by the Federal Resereve. It kept interest rates way to low for too long after the 2001 recession. This made the real cost of buying a home decrease as you could get a low interest loan. So housing prices skyrocketed from 2002 to about 2006.
The increased prices eventually prevented a lot of people from being able to buy homes, but beacsue teh FED has such ow rates there was still a lot of liquidity in the system for banks to lend, so they started lending, sub prime and otherwsie, to people with bad credit. Both leenders and borrowes got in to agreemetns they couldnt keep. To some extent there was also some predatory lending, but this was inor effect.
Once the FED did raise interest rates, the real cost of owning a home rose drastically all of a sudden as mortages became more expensive, and the bubble burst as demand fell.
This is turn caused a lot of the people with subprime loans and others to start defaulting. Some defaulted because now the loan was more then the value of the house, and otheres defaulted because the adjustable rate mortage (ARM) rates increased and they could no longer afford it.
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