The bubble that burst
The property bubble that had brough people so much of money has now burst. The economic bubble that had been created because of cities becoming highly populated has now popped. It began roughly in 2001 and reached its peak in 2005. Then on it has been a journey downhill. Foreclosure increased greatly in 2006 as home owners were unable to meet their mortgage payments.
The market had leveled for a bit earlier but is now continuing its down slide. Sales have been slowing and inventory has been increasing. This is a two step process:
First real estate prices rise until unsustainable levels are reached as compared to income and then real estate prices crash leaving home owners with negative equity which is a mortgage loan higher than the value of the property. The economy is not expected to recover from this slump until 2009 at the very least.
This boom was caused by the lowest interest rates ever and an unprecedented mania for buying houses. There has also been a subprime and credit crisis in the past year. Booming home evaluations has had an important impact on the economy because people used homes to refinance other loans and also to have a higher standard of living.
Homes have always been a good investment even when there wasn’t a housing boom. Homes have always brought with them a feeling of stability and constant income. The earlier low interest rate, the mania to buy a house and future expectations led to the housing bubble. But like all such bubbles including the dot com bubble this one too had to burst.
It is the impact on the economy which is a matter of concern. In the times of increasing bankruptcy and financial problems this looks like it is the final nail in the coffin.
