Why did the Federal Government derail the housing boom?

Question

With increases in the prime rate, lending companies are adjusting the rates on variable rate mortgages. Many people are starting to default, which gluts the market for a while which drives prices down. I don't think there can be any doubt that Washington popped the "bubble" intentionally, what was the reason for it (not the excuse).

Answer 1

Housing has gotten too expensive in too many markets. By popping the bubble, the dumb money will be shaken from those markets. This is important, especially for inflation. If workers need ever-larger raises just to "stay even", inflation is never far behind. The only problem is if you were the dumb money person, particularly if you're in over you head, the chances of default are great. You should never buy a house without at least 20% down.

Answer 2

Greenspan was really the one to pop the housing bubble by raising interest rates. Although it was nearing popping all on it's own. Banks were lending out too much money on risky loans. When you see interest only loans and 40-50 year loans, they are getting a little carried away. There are a ton of foreclosures here in Indiana. I can see within a hundred feet or so 3-4 houses that foreclosed around my house. Also, with the way that things were set up it made it a lot easier to build a new house than to buy a pre-exhisting house. So when people have to move their pre-exhisting houses stay on the market for a long, long time. Who wants a pre-exhisting one when you can get a new one for just as cheap or cheaper. Only thing is with the new ones, the escrow sky rockets after a year due to the year in a-rear taxes. That's why there are so many foreclosures here in Indiana. Everything jumps all of a sudden and if things are tight you're done for. Another reason for it popping is a lot of people were buying homes just to flip them or buy them then fix them up a tiny bit and sell them to make a quick buck. After so much flipping, the flipper hits the fan, because many of the flippers can't afford that house payment on a longterm basis, they can afford it just long enough to buy it and sell it. In the end, houses were being built faster than people could afford them.

The reason Greenspan rose interest rates though wasn't really to stop the housing boom though. It was more to stop inflation. Inflation is the increase in prices all around. We started seeing inflation due to the hike in gas prices. The hike in gas prices can only be taken for so long before prices of consumer goods have to be risen. Plastic is made from oil and you have to think of all the increased costs for transportation. The companies will often hold out and won't raise their prices to compete with the competition. However when things get too tight one or two of them will start raising prices. When the first few start raising prices their competition sees that as an opportunity to raise theirs as well, others will start following their lead which creates a rise in the cost of supplies to other companies. So if company A supplies company B and company A raises their prices, that puts more pressure on company B to raise their prices because their cost to make it and transport it has gone up. So it's like a big string of dominoes falling. To stop the rise in inflation, Greenspan had to raise interest rates. Raising interest rates causes people to start saving money instead of spending it thereby lowering demand. The reason people stop spending as much is because the higher interest rate makes it more costly for a loan of money. And as you know from economics. Price increases as demand increases. If you lower the demand, you lower the price thereby stopping inflation.

Answer 3

right this is the way it works. If the Democrats are inflicting it, they're pronounced to be clever negotiators. If the Republicans do it, they're pronounced to be preserving all people hostage. it extremely is totally comical. as quickly via fact the government shuts down, they at present close the national Parks and workplaces that grant centers to people interior the main glaring way. no longer, decrease lower back on replica paper, no longer furlough non everlasting workers. no longer close down non mandatory departments or quickly lay off assistants to assistants, yet they at present initiate threatening Social protection recipients. by way of the way, despite the fact that if or no longer they close the government down or no longer, has no result on Social protection money. they at the instant are not paid out of the final fund yet from a particular have faith fund. a minimum of for here couple of years. *

Answer 4

Simple. It was not profitable for the Federal Government to allow the housing boom.

Answer 5

bad government!