Ten years after the Great Recession, the global economy is finally recovering from the troubles of this immense event. Here in the United States, Americans felt the Great Recession in the form of the housing market crash 2008 experienced. Many scholars are still trying to figure out what caused the housing crash in 2008. While there isn’t one main culprit, there are few scholars can agree played a major role.
The early 2000s saw an economic and housing boom that made lenders eager to perform risky moves. One of these came in the form of subprime mortgages. These mortgages allowed those with low credit scores and bad financial history to afford their own homes, houses which were in high supply. This demand drove up housing prices extraordinarily high. At this point, the government began to notice this rapid increase and raised interest rates. This bubble burst is just one component of what caused in the housing crash in 2008.
Another reason for the housing market crash 2008 witnessed was the increase in subprime mortgages. With these, homebuyers could afford homes which otherwise were beyond their reach. After the increase in interest rates, these homeowners could no longer afford to pay off their loans. Unfortunately, with a sudden decrease in housing prices selling a home wasn’t a viable option either. This allowed them no other option but to default or to be foreclosed.
Before the housing crash 2008 underwent, the high supply of homes and low interests allowed many to buy multiple homes. This allowed for rampant house speculation which helped further housing prices. Speculation is essentially buying something with the plan on selling it for profit. However, with the sudden drop in housing prices, there were essentially no profits to be made.
These factors, in combination with little government regulation and risky hedge funds, helped cause the housing crash 2008 experienced. With a financial and automotive crisis in full swing, the global economy would soon come to a crashing stop.