The Housing Bubble Burst Was Caused by Greed On Both Sides

by Greg Cryns

A property bubble is often called a "housing bubble" when talking about residential real estate. The bubble is caused by a heated real estate market that raises prices swiftly. Eventually the bubble will burst when the price of the houses overreach the ability of the public to pay for 

the houses or to obtain mortgage loans for the houses.

This is not an unusual phenomenon and bubbles happen around the world in developed countries. Usually bubbles are followed by very depressed housing prices meaning that the prices will go down on houses often swiftly and deeply. This is called a "housing price crash" and some people will be in positions of "negative equity" which can be dangerous if you cannot pay the mortgage and you must sell your house. 

However, unlike previous bubbles, the current crash of 2006-2008 should have been evident to both mortgage companies and lawmakers. Perhaps the greed of both got in the way of common sense and the people who could have done some things to avert the crisis turned blind eyes to the problem. The result could be very difficult economic times for the foreseeable future to say the least.

There are now predictions of a possible economic depression. If you are in the job market you will find that the US is definitely in a serious recession already.

As early as 2006 I was told not to invest in real estate trusts because the rich folks were avoiding them. If you want to know the future, follow the money. If they saw the problem then it is obvious that the great economists and money lenders must have seen it too.

This is inexcusable and immoral and since the loans were being made to so many people without proper incomes and without much, if any, down payments. It makes you wonder if the mortgage folks even looked at prior credit ratings.

However, the borrowers are not free from fault here. I think that most of the borrowers knew their mortgages would increase at a certain point in the future. They simply figured that housing prices would keep going up. They ignored the prognosticators.

The borrows who are walking away from their homes now had the benefit of living in very nice homes for a couple of years or more. They often put nothing or very little down payments on those houses so by walking away they did not lose much in down payments. However, they did lose money in higher payments than they may have seen for rentals.

However, I hold our authority figures much more to blame because we have been taught and trained to watch and listen to our authorities.

The authorities let us down. More than that, their actions were fueled by raw, pure and unadulterated greed.

Author Bio:

Greg Cryns is the owner of Flat Fee Real Estate Guide
http://www.flatfeerealestateguide.com  If you are looking for a flat fee or rebate real estate agent start here.