Problems Encountered in the US and Global Housing Market

The U.S. Housing market slump has a long and inter-related history. Policies, financial packages and expectations during a housing market bubble, peaking between 2002 and 2006, accumulated a backlog of market forces ready to burst. The crashing housing market is a knock on from this unsustainable boom period, which we need to take a closer look at to find answers as to the crash has occurred to such an extent.

Reasons for U.S. Housing market slump

The housing boom, roughly starting in 2002, itself has the background of the U.S. recession in 2001. Following booms of the late 90s, with dot com and stock market increases, The Federal Reserve tightened credit in the U.S economy in an attempt to control inflation and achieve sustainable growth. This lead to short term interest rate hikes, which briefly lowered borrowing and consumer spending whilst stock prices began to fall sharply, and unemployment rose, the U.S economy, entered a slump.

Home

2002

Following the recession of 2001, the housing market held strong in 2002 and increased in sales to hit a record of $5.3 million (Joint Center for Housing Studies of Harvard University, 2002). Much of the increased demand is attributed to changes in demographics as immigration and ethnic minorities joined the share of homeowners, enabled by subprime, low-deposit mortgages fuelled by the Federal Reserve expansionary monetary policy during the recession.

2003

Following the record year of 2002, a housing market bubble began to grow as purchases increased for investment purposes from speculators that jumped on the increasing house prices. Borrowers began to borrow higher amounts, despite the general increase in unemployment above averages (see table 1), to capture more valuable properties with the expectation that house prices will continue to appreciate rapidly in value following the market trend and a lagging quantity of builds. Increased capital for purchases, despite a difficult labour market was enabled by ever loosening mortgages from the lenders with lower interest rates making monthly payments affordable.