The Real Estate Market in the United States - The Red Carpet


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Saturday, April 30, 2022

The Real Estate Market in the United States

The United States of America is one of the world's most developed nations. It's also known for having the world's most transparent market system. Because many economies throughout the world are so intertwined with the American economy, any movement in the American markets has repercussions all around the world.

This truth became more apparent in 2007, when a local real estate crisis in American markets morphed into a global catastrophe that threatened to bring the global financial system to a standstill! The study of real estate markets would be incomplete without an understanding of the recent history of the American markets. We will discuss the two major boom-bust cycles that the American real estate sector has seen during the 1980s in this post.

Read Also : What is the best way to start real estate business?

Stage 1: The Bust

From the 1980s until the present, the American real estate market has been in a downturn. The Savings and Loan Crisis, which was prevalent in the markets at the time, caused this bust. Prior to the 1980s, the majority of homes in the United States were acquired with funds borrowed from these Savings and Loans institutions.

The Fed, on the other hand, realised that inflation was out of control in the 1980s. As a result, Paul Volcker, the Fed's chairman at the time, boosted interest rates to as high as 20%! The savings and loan business was nearly wiped out as a result of the interest rate hike, as they were unable to attract new capital at these rates. In addition, the number of people willing to borrow at this rate to purchase a property decreased considerably, resulting in a real estate market meltdown.

The savings and loan crisis resulted in one of the lowest periods in US real estate history at the time. The folks, on the other hand, had no idea what was in store for them afterwards!

Stage 2: The Manufactured Boom

The 1990s were devoted repairing the damage done by the savings and loan crisis. Savings and lending banks had run out of money. Other financial institutions, on the other hand, were facing significant financial difficulties. As a result, lending activity was minimal. Various regulations were enacted by the government to boost lending, particularly lending to the real estate sector.

Communities Reinvestment Act legislation, for example, was enacted with the goal of encouraging minority financing. Soon, the political goal of realising the so-called "American Dream" surpassed all logic. Politicians were adamant about enacting legislation that would make it easier for more people to own homes. These policies' long-term consequences were simply not considered.

The decade that followed is regarded as one of the most prosperous in American history. This boom was aided in great part by the near-zero interest rates that prevailed in the United States at the time. Furthermore, banks have been mandated by legislation to decrease their lending standards in order to make as many loans as possible!

As a result of all of these activities, the real estate market became saturated with buyers who had unexpectedly found themselves with a large sum of money and were eager to purchase houses that always seemed to rise in value, making their owners wealthy. The actions of the American government contributed to the boom in the American real estate sector that lasted from the late 1990s until 2007. As a result, it's commonly referred to as the "fabricated boom."

Stage 3: The Crisis

The year 2007 was marked by one of the world's most severe financial crises. The American real estate industry was at the foundation of this disaster. The fabricated boom that resulted from government initiatives quickly devolved into a manufactured disaster. This is because, once again, President Alan Greenspan was forced to hike interest rates in the economy due to inflation fears.

This rise in interest rates triggered the subprime mortgage crisis, a once-in-a-generation event. Mortgage payments increased when interest rates rose, resulting in higher monthly payments. Many homeowners were unable to keep up with their rising mortgage payments. The houses had to be foreclosed as a result. The falling value of dwellings resulted in an over supply situation, causing prices to fall even further.

Almost every market in the world was badly affected by this massacre. The American real estate market, on the other hand, took the worst of the blow, losing about half of its value!

Stage 4: The Post-Crisis Market

The real estate market in the United States has been recovering since the 2008 financial crisis. The recovery, on the other hand, has been gradual. The real estate market's sharp losses have been replaced with a gradual rise. The good news is that government intervention in the market is negligible this time, and moderate growth is not being fueled by historically low borrowing rates. Some critics refer to the United States' Quantitative Easing programmes as the cause of the constant rise. However, nothing can be said definitively at this time.

To summarise, the real estate market in the United States has had its ups and downs. Real estate isn't the steady and predictable investment sector that many people believe it to be. It's almost as dangerous as any other investment (if not more)


Read Also :

1. The Effects of Real Estate Laws in India and the United States

2. Current Indian Real Estate Industry - Detailed Analysis

3. (RERA) The Real Estate (Regulations and Development) Act, 2016 : Analysis & Judgments



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