Image via Wikipedia
New Homes sales has fallen to the historical lowest level since the government reporting started the figures back in 1963. New York Times
The sales has dropped 33 percent being the lowest on record according to the commerice department. The federal tax credit has helped to help the soaring home sales for some time and now its getting worse as the federal tax credit expireson 30 April.
The current on going recession also called the Great recession after the Great Deprssion is mainly due to the bursting of American housing bubble back in 2007. The housing sector saw an increase of more than 124% over the period 1997-2006. The housing bubble resulted in inspiring and convincing homeowners to refinance their homes at lower interests rates or getting bigger credit lines for consumer spending due to price appreciation. We heard the terms “subprime” and adjustable rate mortgages (ARM) which mainly refer to second borrowers and adjusting the mortgage rate when the borrower finds it difficult to pay the monthly installments. Loans on easy intial terms encouraged and motivated many borrowers to mortgage houses that they can refinance at lower interest rates in future and would benefit with the rising prices of houses which proved wrong.
Mortgage based securities (MBS) and collateral debt obligations (CDO) , financial agreements increased phenomenally during the housing boom as it derives the value from mortgage loans. MBS and CDO were introduced by Investment banks on Wall Street and they were assigned safe ratings by credit rating agencies.
The roots of this crisis are mostly attriubuted to government sponsored entities Fannie Mae, Freddie Mac mainly responsible for subprime lending.
No comments:
Post a Comment