Need help with my writing homework on Mortgage Inflation in the United States. Write a 1500 word paper answering; The housing crisis of 2008 was actually the starting point of a global recession with which the world is still fighting today. In this essay, we will attempt to explain the housing crisis and the economic recession of 2008. Also, the side effects of the recession and possible solutions will be discussed.
During early 2000 US economy was doing very well and the housing sector was growing significantly. Housing prices increased by around 124 percent between 1997 and 2006 (The Economist, 2007, par. 2). The demand for a house in the United States was driving the prices higher and higher. The increasing demand for houses was due to the subprime mortgages. Mortgage companies were given out loans to people who couldn’t afford the loans. These were riskier loans that were made to people who had a bad credit history. Subprime loans were actually increasing the demand for houses in the United States and this was, in turn, increasing prices of houses. This is how a housing bubble was created that was based on the weak foundations of subprime lending.
In these ‘good’ economic times inflation was also increasing and therefore interest rate was also higher. In order to entice people to buy homes mortgage companies started giving out mortgages that initially required the borrower to pay less than the market interest rate and more at a later stage. This also added to the housing bubble.