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When Did the Real Estate Bubble Burst
When Did the Real Estate Bubble Burst

When Did the Real Estate Bubble Burst?

The United States housing bubble was an economic bubble which affected various parts of the United States housing market in over half of American states. Increased foreclosure rates in 2006-2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, collateralized debt obligation (CDO), mortgage, hedge fund, credit and foreign bank markets.

Real estate prices have risen steadily in the United States for decades, with slowdowns causing interest rates to change along the way. Prices increased over time as demand for home ownership through government-sponsored programs increased, along with general feeling that owning real estate represents the American dream. Mortgages became available to a wider range of consumers with programs offered by Fannie Mae, Freddie Mac and others, which may have put money in the hands of some irresponsible homeowners who would later default on payments. Interest rates remained in an affordable range throughout the mid-1990s and early 2000s, making home ownership even more affordable. As with other investments, real estate couldn’t possibly appreciate year over year at such a pace forever, and soon the bubble burst.

The fall down clearly didn’t happen instantly, but there was a sense of thunder as subprime mortgages – those that made to consumers with less-than-perfect credit – became 20% of the market in 2006, according to the Washington Post. Handful of banks made subprime mortgages their entire business, and in early 2008 they began to encounter late payments and defaults in such high numbers that many banks collapsed. Heavy subprime portfolios quickly brought down insurance companies such as AIG that had insured these mortgages. Pools of mortgages used for investments were defaulting, and institutions such as Lehman Brothers and Bear Sterns that underwrote, owned and sold many such investments saw drops in value so great they not only had to shut their doors but also brought down others. Meanwhile, the increased foreclosures began to bring down values of nearby homes, and the chain reaction spread across the country from 2008 to 2010.

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