Kindleberger's premise is that psychological mechanisms, rather than actual economic realities, are at the basis of market phenomena and crises. According to the author's model, there are several steps within the cycle towards economic crises. The six stages he identifies can be applied to the current housing market, which seems to be in the process of reaching the stage of crisis. The housing market, more than many other economic factors, is very dependent upon environment-specific factors. These are flexible according to elements such as reputation and maintenance issues. The psychological factor then plays a particularly important role in the housing market. Generally, homeowners expect to sell at a substantial profit. This factor then makes home buying an attractive investment option. It is however also true that the apparent profit made by the home seller is not necessarily a realistic outlook in terms of investment. When elements such as maintenance costs over the years of ownership are considered, the profit is substantially...
Furthermore the profit made by the seller needs to be invested immediately in another house, further cutting most of or all profit to be made from the original investment. It is thus clear that the psychological factor creating a boom in a certain market has played a particularly large part in the housing market, as the boom began thirteen years ago.
Housing Bubbles Contagious? Like the sudden collapse of publically traded internet technology stocks in the year 2000 which was its predecessor, the speculative real estate bubble that peaked in 2006 and deflated with such sudden and devastating scope was viewed by many as a calamitous, but largely unforeseeable, confluence of catastrophic economic circumstances. Economic theorists and other researchers have begun the arduous process of debunking that self-perpetuating myth, however, by
Houston's large supply of land means that demand growth primarily results in more construction, not higher prices" (McCullagh & Gilmer, 2008). However, it is important to realize that land supply is only one part of the reason that new home construction formed such a large part of the Houston housing market. Yes, Houston has more available surrounding land than almost any other major metropolitan area in the United States, but
Using a timeline from the peak of new housing construction to the present day, the following occurred. GDP growth slowed, followed by a three-quarter recession and slow growth has resumed on the other side of that recession. The unemployment rate skyrocketed, more than doubling in a short period of time, and has lingered at high levels for over a year. The rate of inflation fell well below the Fed's
Subprime Mortgage Crisis A major issue for today's economy in the U.S. is the subprime mortgage crisis. The mortgage crisis has sent the U.S. economy into a recession with greater impact than the Great Depression of the 1920s. One will discover some important terms that will allow the reader to better understand this topic. Additionally, this paper will examine some background information and events that led to the housing market crash
S. Department of Housing and Urban Development. HouseHunt (2008), http://www.househuntnews.com/MCR/North-Carolina/ Masnik, George and Zhu Xiao Di (2003), "A Sensitivity Analysis," HUD - U.S. Department of Housing and Urban Development. National Association of Realtors, (2007), http://www.realtor.com/ North Carolina Housing Finance Agency (2007), "The State of Housing in North Carolina," www.nchfa.com/ Riche, Martha Farnsworth (2003), "How Changes in the Nation's Age and Household Structure Will Reshape Housing Demand in the 21st Century," PhD, HUD - U.S. Department
" (Shiller, 6) It is important to understand that institutional reforms imply providing a robust framework wherein our financial markets and real estate could function. Regardless of how powerful as well as "technologically sophisticated the train is, it is only as good as the track on which it runs." (Shiller, 7) Insurance, regulatory as well as pension institutions are metaphorically the track which carries our real estate and financial markets. However
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