Understanding Home Sales Trends After The 2008 Real Estate Market Crash

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The housing bubble that affected the United States in 2008 delivered a powerful blow to over 50% of the real estate market in the country. The price for houses increased to its peak between 2006 and 2007. The price then hit an all-time low in 2012. Around the end of 2008, it was reported that the market had its lowest decline in the country’s history. However, the credit crisis during this time was largely blamed for the housing bubble burst and the economic recession that occurred between 2007 and 2009 in the country.

Sold Home For Sale Sign in Front of New HouseForeclosure rates began to increase in 2006 and 2007, and these foreclosures eventually led to the financial crisis that caused subprime, hedge fund, mortgage, credit, CDO and foreign bank industries to tank. This is one of the reasons why the housing bubble burst was considered to be the largest risk to the country’s economy at that time.

Whenever the United States housing bubble collapses, it directly impacts the valuations of homes. In fact, the impact is so influential that then President George W. Bush and Ben Bernanke (Chairman of the Federal Reserve) decided to limit the amount of bailouts that would be available for homeowners in the United States’ housing market that were not able to make their mortgage payments.

In fact, in 2008, the Federal Government decided to allocate over $900 billion to loans that were related to the housing bubble burst. Over 50% of this money was given to Freddie Mac and Fannie Mae loans, and the Federal Housing Administration.

What Are Housing Bubbles?

Housing bubbles can occur in regional (local) and national real estate markets. These bubbles can also occur on a global scale. The bubble burst that occurred in 2008 was the result of residential markets in the red line districts of the United States collapsing. As a result, the housing prices begin to decrease and homeowners find that they have negative equity in their homes. Negative equity simply means that the mortgage is more than the actual value of the home. Buyers looking for a high-end home for sale were able to find very good bargains during this period.

The actual cause of a home bubble can be complicated and can be the result of several different factors. Tax policies, low interest rates and very lax standards for lending can contribute to the housing bubble burst of 2008.

Even though a housing bubble can be recognized in real time, it can only be measured after the bubble is over. The credit crisis and the mortgage crisis was the result of many homeowners being unable to make their mortgage payments.

How to Identify A Housing Bubble

As previously stated, it can be difficult to identify a housing bubble until later. The housing bubble of 2008 was identified in 2002 by Dean Baker. He warned of political reasons and the nature of the housing bubble and why it would be ignored. It was also predicted by several political and financial analysts.

Unfortunately, many contested the idea that a housing bubble could occur, especially during the years of 2004 and 2006.

What Are the Side Effects?

Before the housing bubble, the increase in home prices and resulting home sales that began in the late 1990s produced tremendous growth in the United States. One of these effects was the increase in home construction. In the mid-2000s, over 1 million single family homes were sold when compared to a little over 600,000 homes of the same type being sold between 1990 and 1995.

However, this trend reversed during the years of 2006 and 2007. Construction companies began to see their shares decrease by a third as a result of the initial stage of the housing bubble.

The housing bubble resulted in many changes in the real estate market including first time home buyers being shut out of the market as well as the confidence of home buyers plunging. Financial markets including subprime loans and foreign bank markets will need to be restructured to help reduce the impact of another housing bubble on the economy.

Rodney Berry
Rodney Berry
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