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The Role of Housing Markets in the 2008 Financial Crisis - Essay Example
Author : legrosestel
Finance & Accounting
Pages 9 (2259 words)
Name: Course: Tutor: Date: Housing Markets in the financial crisis of 2008 The housing markets played a tremendous role in the business world that resulted into the financial crisis that was experienced in the year 2008. Due to the easily accessible mortgages from the banks the housing industry experienced a boom in that the number of new houses being built increased exponentially…
In this essay the causative circumstances of the bubble are described. Later on there is a discussion about how the various financial decisions that were made which when coupled together with the shortage of proper structure for regulation in the financial sector led to the abnormal growth of the bubble to levels so dangerous that in the end led to the crash. The origin of the housing market boom The boom in the housing market started growing as the stock bubble grew up in the last decade of the 20th century. In simple terms, the logic governing the growth of the housing bubble was one such that the wealthy were spending the money they had accumulated from the favorable stock markets (Baker, 2008, 73). The stock prices had run up in a manner extraordinary and many people had not anticipated. The wealthy therefore started spending at a rate similar to the rate of wealth accumulation. The increased wealth resulted in an increase in the average consumption and it was noted that the savings rate sourced out of every individual’s disposable income experienced a fall from 5% in 1995 to about 2% in the year 2000. ...
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