Future of the Housing Market
The housing crash that began in 2007 resulted in the worst economic catastrophe in the United States since the Great Depression of the 1930s, although few observers who realized that the bubble was about to burst truly understood the severity of the depression that would follow. In reality, it led not only to a collapse of the housing market but also to the failure of large banks, mortgage and insurance companies and very quickly to mass unemployment. The much touted service sector that was supposed to be the engine of the economy in the postindustrial age came to a grinding halt and had to be bailed out by the largest government expenditures since the Second World War. For a public that was accustomed to decades of rhetoric about the virtues of laissez faire and free markets, all this came as quite as shock, perhaps even more so than it did for the generation of the 1920s. By 2006, almost 40% of mortgages were for other the primary residences: was far above the norm and an indication that the speculation had reached a fever pitch, no longer grounded in any form of reality. Only the 1930s Depression offers any real guide to a complete crash of the housing sector like this one, and at that time the market did not really recover until after the Second World War. In short, a depression like this one can last ten years of longer if history is any guide, and even then more federal programs to assist middle and lower income borrowers will have to be implemented, as they were in the 1930s and 1940s. Those that have been attempted thus far have not been particularly successful, especially since the high unemployment rate seems to be very persistent.
The bubble peaked in mid-2006 and slowly began to wind down, while foreclosures rose 75% in 2007. By the end of that year, foreclosures on fixed rate mortgages were up 55% for prime borrowers and 80% for subprime ones, while prime adjustable rate foreclosures were up 400% and subprime...
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