The United States housing bubble was a real estate bubble affecting over half of the US states . Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012. [2] On December 30, 2008, the Case-Shiller home price index reported its largest price drop in its history. [3] The credit crisis resulting from the bursting of the housing bubble is-according to general consensus-the primary cause of the credit default swap bubble of the 2007-2009 recession in the United States . [4]

Increased foreclosure rates in 2006-2007 among us homeowners led to a crisis in August 2008 for the subprime , Alt-A , collateralized debt obligation (CDO), mortgage , credit , hedge fund , and foreign bank markets. [5] In October 2007, the US Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy”. [6]

Any collapse of the US housing bubble: has a direct impact not only on home valuations, profit mortgage markets, home builders, real estate , home supply retail outlets, Wall Street hedge fund Held by broad institutional investors, and foreign banks , Increasing the risk of A nationwide recession. [7] [8] [9] [10] Concerns about the impact of the collapsing housing and credit markets on the larger US economy Caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the US housing market for homeowners who were unable to pay their mortgage debts. [11]

In 2008 alone, the United States government Allocated over $ 900 trillion to special loans and rescues related to the US housing bubble, with over half going to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) ( Both of which are government-sponsored enterprises ) as well as the Federal Housing Administration . [12] On December 24, 2009, the Treasury Department made an unprecedented announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years. [13]

Background

Land prices contributed much more to the price than did structures. This can be seen in Fig. 1. An estimate of land value for a house can be derived by subtracting the replacement value of the structure, adjusted for depreciation, from the home price. Using this methodology, Davis and Palumbo, Lincoln Institute for Land Policy. [14]

Housing bubbles may occur in local or global real estate markets. In their late stages, they are typically characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios , and other economic indicators of affordability. This may be followed by decreases in home prices which result in many ownership in a position of negative equity -a mortgage debt higher than the value of the property. The underlying causes of the housing bubble are complex. Factors include tax policy (exemption of housing from capital gains), historically low interest rates, tax lending standards, failure of regulators to intervene, and speculative fever . [5] [7] [15] [16] [17] [18] This bubble may be related to the stock market or dot-com bubble of the 1990s. [1] [19] [20] [21] [22] This bubble roughly coincides with the real estate bubbles of the United Kingdom, Hong Kong, Spain, [23] Poland, Hungary and South Korea. [24] [25] [1] [19] [20] [21] [22] This bubble roughly coincides with the real estate bubbles of the United Kingdom, Hong Kong, Spain, [23] Poland, Hungary and South Korea. [24] [25] [1] [19] [20] [21] [22] This bubble roughly coincides with the real estate bubbles of the United Kingdom, Hong Kong, Spain, [23] Poland, Hungary and South Korea. [24] [25]

While bubbles may be identifiable in progress, bubbles can be definitively measured only in hindsight after a market correction, [26] which began in 2005-2006 for the US housing market. [27] [28] [29] [30] [31] [32] Former US Federal Reserve Board Chairman Alan Greenspan said “We had a bubble in housing”, [33] [34] and aussi Said in the wake of the Subprime mortgage and credit crisis in 2007, “I really did not get until very late in 2005 and 2006.” In 2001, Alan Greenspan dropped interest rates to a low 1% in order to jump the economy after the “.com” bubble. It was then bankers and other Wall Street firms started borrowing money due to its inexpensiveness. [35]

The mortgage and credit crisis was caused by the inability of a large number of homeowners to pay their mortgages as their low introductory-rate mortgages reverted to regular interest rates. Freddie Mac CEO Richard Syronconcluded, “We had a bubble”, [36] and concurred with Yale economist Robert Shiller ‘s warning that homeowners were overvalued. [36] Greenspan warned of “large double digit declines” in home values ​​”larger than most people expect”. [34]

Problems for home owners with good credit in the mid-2007, causing the United States’ largest mortgage lender, Countrywide Financial , to warn Like never before, with the exception of the Great Depression “. [8] The impact of booming home valuations on the US economy since the 2001-2002 recession Was year major factor in the recovery, has broad Because component of consumer spending fueled by Was the related refinancing boom, qui allowed People to Reduce Their monthly Both Mortgage payments with lower interest rates and withdraw equity from their homes.

Timeline

Main article: Timeline of the United States housing bubble

Identification

ALTHOUGH year economic bubble is difficulty to Identify except in hindsight , Numerous economic and cultural factors led Several Economists (especially in late 2004 and early 2005) to argue That a housing bubble Existed in the US [1] [26] [38] [39 ] [40] [41] [42] [43] Dean Baker identified the bubble in August 2002, thereafter repeatedly warning of its nature and depth, and the political reasons it was being ignored. [44] [45] Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his original publication of Irrational Exuberance in the year 2000.

Griffinin in his 1994 book, The Creature from Jekyll Island , and Jeffery Robert Hunn in a March 3, 2003, editorial. Hunn wrote:

“[W] e can profit from the collapse of the credit bubble and the subsequent stock market divestment [(decline)] Unless you have A very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets). [46]

Many Contested Any suggestion That There Could Be a housing bubble, PARTICULARLY at ict peak from 2004 to 2006, [47] With Some Rejecting the “bubble house” in 2008. label [48] Claims That There Was No warning of the crisis Were further Top repudiated in an August 2008 paper in The New York Times , qui Reported That in mid-2004 Richard F. Syron , the CEO of Freddie Mac , received a memo from David Andrukonis , the company’s training chief risk officer , warning _him_ That Freddie Mac was Freddie Mac’s financial stability. In his memo, Mr. Andrukonis wrote that these loans ”

Federal Reserve Governor Edward Gramlich is a member of the Federal Reserve Board of Directors. [50] In September 2003, at a hearing of the House Financial Services Committee , Congressman Ron Paul identified the housing bubble and foretold the difficulties it would cause: “Like all artificially-created bubbles, the boom in housing prices can not last forever. The mortgage debt will also have a loss. ”

The Economist magazine stated, “The world is in the biggest bubble in history”, [52] so the United States. The then Federal Reserve Board Chairman Alan Greenspan said that “at a minimum, there’s a little ‘froth’ (in the US housing market) … it’s hard to see that there are a lot of local bubbles”; Greenspan admitted in 2007 that froth “was a euphemism for a bubble”. [34] In early 2006, President Bush said the US housing boom: “If houses get too expensive, people will stop buying them … Economies should cycle”. [53]

Throughout the bubble period there was a lot of money to be spent on a lot of money .

On the basis of 2006 market data indicating indication That Were a marked decline, Including lower sales, rising inventories, falling median prices and Increased foreclosure rates, citation needed ] Some Economists Concluded que le-have patch in the US housing market Began in 2006. [ 9] [54] A May 2006 Fortune magazine reports on the US housing bubble states: “The great housing bubble has finally started to deflate … In many cases, Waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials. ” [28]

The chief economist of Freddie Mac and the director of the Joint Center for Housing Studies (JCHS) denied the existence of a national housing bubble and Expressed Doubt That Any significant decline in home prices Was possible Citing Consistently rising prices since the Great Depression , an Anticipated Increased demand from the Baby Boomgeneration, and healthy levels of employment. [55] [56] [57] However, some have suggested that the funding received by JCHS from the real estate industry may have affected their judgment. [58] David Lereah , former chief economist of the National Association of Realtors (NAR), distributed “Anti-Bubble Reports” In August 2005 to “respond to the irresponsible bubble accusations made by your local media and local academics”. [59]

Among other statements, the reports stated that people “should [not] be concerned that home prices are rising faster than family income”, that “there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic Factors “, and that” a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and are likely to continue to rise above historic norms “. Citation needed ] Following deferrals of dirty Rapid Declines and price depreciation in August 2006, [60] [61] Lereah admis That he expected “home prices to come down 5% Nationally, more In Some markets, less in others. And A Few Cities in Florida and California,

National home sales and prices both fell dramatically in March 2007 – the steepest plunge since the 1989 Savings and Loan crisis . According to NAR data, sales were down 13% to 482,000 from the peak of 554,000 in March 2006, and the national median price fell nearly 6% to $ 217,000 from a peak of $ 230,200 in July 2006. [32]

John A. Kilpatrick , of Greenfield Advisors , was cited by Bloomberg News on June 14, 2007, on the linkage between increased foreclosures and localized housing price declines: “Living in an area with multiple foreclosures can result in a 10 percent to 20 percent decrease In property values ​​”. He went on to say, “In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. hit. ” [62]

The US Senate Banking Committee held hearings on the housing bubble and related loan practices in 2006, titled “The Housing Bubble and its Implications for the Economy” and “Calculated Risk Assessment Non-Traditional Mortgage Products.” Following the collapse of the subprime mortgage industry in March 2007, Senator Chris Dodd , Chairman of the Banking Committee held hearings and asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that “predatory lending” had endangered home ownership for millions of people. [18] In addition, Democratic senators such as Senator Charles Schumer of New York were already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences. [18]

Causes

Main article: Causes of the United States housing bubble

Extent

Inflation-adjusted housing prices in the United States by state, 1998-2006.

Home price appreciation has-been non-uniform to Such an extent That Some Economists, Including train Fed Chairman Alan Greenspan , argued-have That United States Was not experiencing a nationwide housing bubble per se , goal number of local bubbles. [63] However, in 2007 Greenspan admitted that it was in fact a bubble in the US housing market, and that “all the froth bubbles add up to an aggregate bubble”. [34]

Despite its location, the hotel is located in the heart of the bubble. Out of 20 Largest metropolitan areas tracked by the S & P / Case-Shiller house price index , six (Dallas, Cleveland, Detroit, Denver, Atlanta and Charlotte) saw less than 10% price growth in inflation-adjusted terms in 2001-2006. [64] During the same period, seven metropolitan areas (Tampa, Miami, San Diego, Los Angeles, Las Vegas, Phoenix, and Washington, DC) appreciated by more than 80%.

However, housing bubbles did not manifest themselves in each of these areas at the same time. San Diego and Los Angeles had been maintained consistently high appreciation rates since late 1990s, but the Las Vegas and Phoenix bubbles did not develop until 2003 and 2004 respectively. It was in the East Coast, the most populated part of the country where the economic real estate turmoil was the worst.

Somewhat paradoxically, as the housing bubble deflates [65] some metropolitan areas (such as Denver and Atlanta) have been experiencing high foreclosure rates, even though they did not see much house appreciation in the first place and therefore did not appear to be contributing to The national bubble. This was also true of some cities in the Rust Belt such as Detroit [66] and Cleveland , [67] where weak local economies had produced little house price appreciation early in the decade but still saw declining values ​​and increased foreclosures in 2007. As of January 2009 California, Michigan, Ohio and Florida were the states with the highest foreclosure rates.

By July 2008, year-to-date prices had declined in 24 of 25 US metropolitan areas, with California and the southwest experiencing the greatest price falls. According to the reports, only Milwaukee had seen an increase in house prices after July 2007. [68]

Side effects

Prior to the real estate market correction of 2006-2007, the unprecedented increase in house prices in the United States.

  • One of the most direct effects was on the construction of new houses. In 2005, 1,283,000 new single-family homes were sold, compared with an average of 609,000 per year during 1990-1995. [69] The largest home builders, such as DR Horton , Pulte , and Lennar , saw their largest share prices and revenues in 2004-2005. Port Corp’s revenues grew from $ 2.33 billion in 1996 to $ 14.69 billion in 2005. [70] [71] [72] Horton’s stock has gone from $ 3 in early 1997 to all-time high of $ 42.82 on July 20,
  • Mortgage equity withdrawals – home equity loans and cash out refinancings – grew considerably since the early 1990s. According to US Federal Reserve estimates, in 2005 homeowners extracted $ 750 billion from their homes ($ 106 billion in 1996), spending two thirds of it on personal consumption, home improvements, and credit card debt. [73]
  • It is widely believed that the expanding housing of the economic activity produced by the expanding housing bubble in 2001-2003 was partly responsible for averting a full-scale recession in the US economy following the dot-com bust and offshoring to China. Analysts believed that with the downturn in the two sectors, the economy from the early 2000s to 2007 evaded what would have been stagnant growth with a booming housing market creating jobs, economic necessity along with a consumer boom Market began a correction. [74]
  • The result of this study is the fact that the growth of exurbs in some regions of the world. The population of Riverside County, California almost doubled from 1,170,413 in 1990 to 2,026,803 in 2006, due to its relative proximity to San Diego and Los Angeles . On the East Coast, Loudoun County, Virginia , near Washington, DC ., Saw its population triple between 1990 and 2006. citation needed ]
  • Extreme regional differences in land prices. Prices are in USD and are approximate and may differ from the near sum. [14] The Wisconsin Business School. [14] One of the fastest growing regions in the United States for the last several decades was the Atlanta, Georgia metro area, where land is a small fraction of those in the high-priced markets. Highland values ​​for the development of the new industrial plants in the South of the United States.

These trends were reversed during the 2006-2007 real estate market correction. As of August 2007, DR Horton’s and Pulte Corp’s shares had fallen to 1/3 of their respective peak levels as new residential home sales fell. Some of the cities and regions that had experienced fastest growth during 2000-2005 began to experience high foreclosure rates. [65] It was suggested that the weakness of the housing industry and the loss of the consumption that had been driven by the withdrawal of mortgage equity could lead to a recession, but as of mid-2007 the existence of this recession had not been ascertained. [75] In March 2008, Thomson Financial reported that the ” Chicago Federal Reserve Bank ”

The Fannie Mae and Freddie Mac share a lot of money. [77] On June 16, 2010, it was announced that Fannie Mae and Freddie Mac would be delisted from the New York Stock Exchange; Shares now trade on the over-the-counter market. [78]

Housing market correction

Trends, [1] [80] in 2005 and 2006. Many Economists and business writers Predicted market corrections ranging from A Few percentage point to 50% or more from peak values In Some markets, [27] [ 81] [82] [83] [84] [85] and although this has had all areas of the US, some warned that it could still be corrected would be “nasty” and “severe”. [86] [87] Chief Economist Mark Zandi of the economic research firm Moody’s Economy.com predicted a “crash” of double-digit depreciation in some US cities by 2007-2009. [5] [88] [89] Yale University economist Robert Shiller warned, “The examples we have of past cycles indicate that major declines in real home prices-even 50 percent declines in some places are entirely possible going forward from today or from the not-too-distant future. ” [90]

To find out how the mortgage crisis has played out, a 2012 report from the University of Michigan analyzed data from the Panel Study of Income Dynamics (PSID), which surveyed roughly 9,000 households in 2009 and 2011. Conditions are still difficult, in some ways the crisis is easing: Over the period studied, the percentage of families behind on mortgage payments fell from 2.2 to 1.9; Homeowners who thought it was “very likely or somewhat likely” that they would fall from 6% to 4.6% of families. On the other hand, family of financial liquidity has decreased: “As of 2009, 18.5% of families had no liquid assets, and by 2011 this had grown to 23.4% of families.” [91 ]

By mid-2016, the national housing price index was “about 1 percent shy of that 2006 bubble peak” in nominal terms [93] but 20% below in inflation adjusted terms. [94]

Subprime mortgage industry collapse

Bank runs on the UK’s Northern Rock Bank by customers who take a turn for the US subprime crisis.

In March 2007, the United States’ subprime mortgage industry collapsed due to higher-than-expected home foreclosure rates (No. Verifying source), with more than 25 subprime Lenders Declaring bankruptcy, Announcing significant Losses, gold Themselves putting up for sale. [95] The stock of the Country’s Largest subprime lender, New Century Financial , plunged 84% amid Justice Department investigations, before Ultimately filing for Chapter 11 bankruptcy on April 2, 2007, with liabilities conduire $ 100 million. [96]

The manager of the world’s largest bond fund, PIMCO , warned in June 2007 that the subprime mortgage crisis was not an isolated event and would eventually take a toll on the economy and ultimately have an impact in the form of impaired home prices. [97] Bill Gross , a “most reputable financial guru”, [10] sarcastically and ominously criticized the credit ratings of the mortgage-based CDOs now facing collapse:

AAA? You were wooed, Mr. Moody’s and Mr. Poor’s , by the makeup, those six-inch hooker heels, and a ” tramp stamp .” Many of these good-looking girls are not high-class assets worth 100 cents on the dollar … This problem [ultimately] resides in America’s heartland, with millions and millions of overpriced homes. ” [10]

Business Week featured HAS predictions by financial analysts que la subprime mortgage market meltdown Would result in earnings reductions for large Wall Street investment banks trading in mortgage-backed securities , Especially Bear Stearns , Lehman Brothers , Goldman Sachs , Merrill Lynch , and Morgan Stanley . [95] The solvency of two troubled hedge funds managed by Bear Stearns was imperiled in June 2007 after Merrill Lynch sold off assets seized from the funds and three other banks closed their positions with them. The Bear Stearns funds once had $ 20 billion of assets, But lost money by subprime mortgages. [98]

H & R Block reported that it had a quarterly loss of $ 677 million, which included the subprime lender’s option, as well as writedowns, loss provisions for mortgage loans and the lower prices for mortgages in the secondary market. The unit’s net asset value had fallen 21% to $ 1.1 billion as of April 30, 2007. [99] The head of the mortgage industry consulting firm Wakefield Co. warned, “This is going to be a meltdown of a paralleled proportions. lost. ” Bear Stearns pledged up to US $ 3.2 billion in loans on June 22, 2007, to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages. [100]

Peter Schiff , President of Euro Pacific Capital, argued that if the bonds in the Bear Stearns funds were auctioned on the open market, much weaker value would be plainly revealed. Schiff added, “This would force other hedge funds to similarly mark down the value of their holdings. Is it any wonder that Wall Street is pulling out the stops to avoid such a catastrophe? … Their true weakness will finally reveal the abyss into Which the housing market is about to plummet. ” [101] The New York Times report connects the hedge fund crisis with lax lending standards:

On August 9, 2007, BNP Paribas announced that it could not fairly value the subprime mortgage lending markets. [102] Faced with potentially massive (though unquantifiable) exposure, the European Central Bank (ECB) [103] One day after the financial crisis, the US Federal Reserve Bank conducted an ” open market operation ” to inject US $ 38 trillion in reserves into the system to help overcome the ill effects of a spreading Credit crunch, On top of a similar move the previous day. Citation needed ] In order to further Top ease the credit crunch in the US credit market, at 8:15 am on August 17, 2007, the chairman of the Federal Reserve Ben Bernanke Decided to lower the discount window rate, qui est the lending Rate between banks and the Federal Reserve Bank, by 50 basis points to 5.75% from 6.25%. The Federal Reserve Bank has announced that it will be able to provide financial assistance to the government. the chairman of the Federal Reserve Ben Bernanke Decided to lower the discount window rate, the lending rate qui est entre banks and the Federal Reserve Bank by 50 basis point to 5.75% from 6.25%. The Federal Reserve Bank has announced that it will be able to provide financial assistance to the government. the chairman of the Federal Reserve Ben Bernanke Decided to lower the discount window rate, the lending rate qui est entre banks and the Federal Reserve Bank by 50 basis point to 5.75% from 6.25%. The Federal Reserve Bank has announced that it will be able to provide financial assistance to the government.

In the wake of the mortgage industry meltdown, Senator Chris Dodd , Chairman of the Banking Committee held hearings in March 2007 in which he asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that “predatory lending practices” were endangering home ownership for millions of people. [18] In addition, Democratic senators such as Senator Charles Schumer of New York were already proposing a federal government bailout of subprime borrowers like the bailout made in the Savings and Loan crisis, in order to save homeowners from their residences. Opponents of such a proposal asserted that a government bailout of subprime borrowers is not in the best interests of the US

Lou Ranieri of Salomon Brothers , creator of the mortgage-backed securities market in the 1970s, warned of the future impact of mortgage defaults: “This is the leading edge of the storm. Like in the middle of the crisis. ” In his opinion, more than $ 100 trillion of home loans are likely to default when the problems in the prime mortgage markets emerge. [104]

Former Federal Reserve Chairman Alan Greenspan had the opportunity to make the subprime mortgage industry and the tools to assess credit-worthiness in an April 2005 speech. [105] Because of These remarks, as well as His encouragement of the use of adjustable-rate mortgages, Greenspan has-been Criticized For His role in the rise of the housing bubble and the subsequent problems in the mortgage industry That triggered the economic crisis of 2008 . [106] [107] [108] Concerning the subprime mortgage mess, Greenspan later admitted that “I really did not get until very late in 2005 and 2006.” [35]

On September 13, 2007, the British bank Northern Rock applied to the Bank of England for emergency funds Because of liquidity problems related to the subprime crisis. [109] This precipitated a bank run at Northern Rock branches across the UK by qualified customers who took out “an estimated £ 2bn withdrawn in just three days”. [110]