What Caused America's Mortgage Crisis?

The main cause of the 2007-2009 recession was the burst of the housing bubble which resulted in a credit crisis. Throughout early 2004-2006 many economist doubted that a “housing bubble” even existed because traditionally housing markets are quite stable. Inevestopedia defines the 'Housing Bubble' as “a run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future”.  

However, the future was definitely not infallible, the combination of subprime mortgages given by mortgage and finance companies fueled market demand and the short-term skyrocket of demand eventually stalled and the bubble burst.  These mortgages with unrealistic conditions were caused in part by government deregulation and were forced to repent by paying billions of dollars to bail out financial companies to ensure the entire economy would not collapse.

Mortgage Companies were unable to refinance customers’ loans when the market began to decline and millions of Americans lost their homes. Utah was one of the states worst affected by the crisis and by 2011 had the fourth highest foreclosure rate in the nation. After the bubble burst, almost all other facets of the economy began to decline as well. The United States fell into one of the worst recession since the Great Depression. 

In the end, the only way to fix a bubble problem is to let it burst and then let time and the free-market fix itself. By 2013, housing prices slowly began to rise and regain control. The crisis left Americans more aware of the risks of home owning and less likely to jump into buying home without serious thought.

Jillian Eaton is a finance writer. Jillian writes for Fusion 360, an advertising agency in Utah. Find her on Google+.

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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