The Housing Market’s Downfall

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In my previous post I began to look at the history behind the housing market bubble, and its eventual downfall.  I have found the housing bubble to be particularly interesting because I come from an area in California where the bubble had a very strong impact.  Many people during that time thought that they could finance a nicer home through selling their old one.  The big problem was that they purchased the new house without selling the old one and now they can’t afford either of them.  Houses in certain blocks stood vacant for months, and a lot of homes were turned into rentals. While my earlier post mentioned some of the benefits of renting, one major downfall is that rentals cause other homes in the area to lose value because the rentals aren’t always kept to the same standard. 

I want to look into the housing market and see why there is such an emphasis on being a homeowner.  What exactly goes into the policies to own homes, and why did they come about?  It is amazing to see how policies that many of us consider to be only a part of history are still very relevant in impacting present day.  Many policies that existed during the housing bubble had a basis from previous policies, and everything just grew from there.

As I continue to work on my paper I will find more information relating to the policies mention in Alyssa Katz’s book Our Lot: How Real Estate Came to Own Us.  The Daily Finance has reviewed the book and mentioned that most of its findings are based on the opinions of those who had a role in the downfall (i.e. executives, homeowners, real estate investors, and community activists) instead of Katz opinion of what happened.  I plan to read the book, since my previous post was based purely on a podcast interview of the author.  I also will be looking at the actual policies that Katz references in her book to evaluate their connections to each other.

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8 Responses

  1. This is a very interesting topic. It seemed that a lot of people got loans while their credit should not have allowed them. Do you think the government should have more regulation in this market after what happen? It seemed that banks just gave loans to every single person and disregard their credit score. Perhaps there should be stronger policies when someone wishes to purchase a home.

  2. I too live in Southern California, and I’ve seen my share of homes that will not sell. As far as the emphasis on owning a home goes, it’s because it’s supposed to be a very sound investment. Until the bubble burst, a home’s value was almost assumed to increase over time (which they did). This provided an element of security for buyers and owners. If you couldn’t make your mortgage payment, the house was usually enough to cover it, but when the bubble burst, home prices plummeted and as a result mortgages greatly out valued homes. This is how a lot of people got into trouble.

  3. I think that the way mortgages were bundled and traded created an environment where banks were willing to be very loose with the terms. If I could get someone into a home or refinance an existing mortgage, collect a few thousand in fees, bundle the mortgage up with others, and sell the entire pool to a third party, I’m not sure I would have been as tight either. I’m not sure if we need stronger policies. What we need are smarter consumers. I think a huge part of this falls on the loan applicant. If you don’t understand the terms of the loan or if they seem too good to be true, don’t take the loan. Maybe people who have had their ARMs readjusted will learn a thing or two.

  4. I think it would be really interesting if you looked at different geographic areas in the United States and how these regions were affected by the housing bubble. You could look into the unemployment rates and foreclosure rates in both areas and make some insights into the true effects of the housing bubble.

  5. I like how you mentioned renting as being both beneficial and detrimental. This is an idea that I may also like to look into for some research. It’s interesting to think of how renting out a vacant house can save (atleast partially) an owner from a poor investment of buying the house, but at the same time harm the housing investments of other neighboring home owners. My father is actually a realtor in Philadelphia, which is a market of both rentals and sales. While he certainly lost business in housing sales, he also gained business from managing rental properties. So while society puts such an emphasis on owning homes, renting actually financially helps out a number of different people, especially during recessions. So should we let the desire of home ownership own us, or might there be some value in renting?

  6. Possible book titles form our library:
    Chasing the American dream : new perspectives on affordable homeownership / Rohe, William M.
    Library
    Call Number
    Copies
    Material
    Location
    HD7287.96 .U6 C43 2007
    1
    Book
    Lower Level 1
    Financial fiasco : how America’s infatuation with homeownership and easy money created the economic crisis / Norberg, Johan, 1973-
    Library
    Call Number
    Copies
    Material
    Location
    HD7287.82 .U6 N67 2009
    1
    Book
    Lower Level 1
    Housing America / Smith, Wallace Francis, 1926-
    Library
    Call Number
    Copies
    Material
    Location
    H1 .A4 V.465
    1
    Book
    Lower Level 1
    Housing [electronic resource] : the essential foundations / Balchin, Paul N.
    Library
    Call Number
    Copies
    Material
    Location
    ONLINE
    1
    Electronic Book
    Internet
    Housing and neighborhoods : theoretical and empirical contributions / Van Vliet–, Willem, 1952-
    Library
    Call Number
    Copies
    Material
    Location
    HD7287.5 .H47 1987
    1
    Book
    Lower Level 1
    Housing boom and bust : owner occupation, government regulation and the credit crunch / King, Peter, 1960-
    Library
    Call Number
    Copies
    Material
    Location
    HD7287 .K5584 2010
    1
    Book
    Lower Level 1
    Opportunity 08 : independent ideas for America’s next president / Michael E. O’Hanlon, editor /
    Library
    Call Number
    Copies
    Material
    Location
    JK526 2008 .O77 2008
    1
    Book
    Material has been checked/charged out
    Private dwelling : contemplating the use of housing / King, Peter, 1960-
    Library
    Call Number
    Copies
    Material
    Location
    HD7287 .K559 2004
    1
    Book
    Lower Level 1
    The great inflation and its aftermath : the past and future of American affluence / Samuelson, Robert J.
    Library
    Call Number
    Copies
    Material
    Location
    HG540 .S26 2008
    1
    Book
    Lower Level 1

  7. Tania, I think that the big issue was that while policies did exist no one was making sure that they were being followed. Policies work well as long as there are people there to enforce them; it only takes a few devious people to screw up majorly for everyone else. When the housing market collapsed I heard many interviews with those involved in the process. Many of them said they were not necessarily comfortable with what they were asked to do, but they did it because there was so much pressure to keep up with other organizations who had already been breaking the rules. So, at what point does policy become ineffective?

  8. […] The Housing Market’s Downfall […]

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