The housing slump set off a chain reaction in our economy. Individuals and investors could no longer flip their homes for a quick profit, adjustable rates mortgages adjusted skyward and mortgages no longer became affordable for many homeowners, and thousands of mortgages defaulted, leaving investors and financial institutions holding the bag. This caused massive losses in mortgage backed securities and many banks and investment firms began bleeding money. This also caused a glut of homes on the market which depressed housing prices and slowed the growth of new home building, putting thousands of home builders and laborers out of business.
Real estate contributes 10% to the economy, so if prices decline, so will GDP....
ReplyDeleteIt is saddening to note that the decline in house prices and the fall in home-building will further intensify the current recession across the economy; the sub-prime mortgage crisis could lead to a freeze in much of the credit markets; and the decline in home equity loans and mortgage refinancing, triggered by the fall in house prices, could cause further declines in consumer spending.
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