It is common knowledge that ups and downs are there in any business. But it is more visible if it happens in wholesome, arising out of reasons not directly related to omissions or commissions by the businessmen themselves. One such bubble was notable in Real estate business in U.S. in the years 2000-2001 and continues to plague the industry even today. It all started in the most populous States of U.S., such as California, Florida, New York, Chicago and cities like Detroit. The slump in the Real estate in U.S. was at its peak in 2005-2006. The reasons for this bubble occurred in Real estate in U.S. were identified by economists, such as –
- low interest rates never heard of in mortgage loans which are primarily sought after in home buying;
- poor lending standards adopted by financial institutions like Government agencies; banks; co-operative housing societies etc. whereby huge amounts of loans were issued to persons whose credit record was not that good as it should be
- a mania among U.S. citizens for purchasing houses, instigated and encouraged by the policy decision of the federal governments to provide homes for the homeless.
Exactly like the stock market bubble and dot com bubble, which shook the entire world in the 90s, this was another one in Real estate in U.S. causing a chain of reactions in the economy of U.S. People who were emboldened by the easy availability of mortgage loans at low interest rates went for buying their dream homes, which were above and disproportionate to their actual income. This resulted in their inability to meet the repayment installments in time or volume and foreclosure of properties which were defaulted started soring towards the sky. Again, the increased foreclosure figures in the States, caused crisis in the sub-prime lending market; mortgage credit; hedge funds; pension funds and foreign banks as well.
The demand and supply cycle of Real estate in U.S. was severely affected. The abundance in availability of foreclosure homes, known as distressed properties, at 20 to 50% below the current market levels had a telling effect in Real estate in U.S., whereby the prices of properties listed in MLS – Multiple Listing Services began to fall considerably. Thus the Real estate in U.S. for home buying has become a buyers’ market. The boom of 2004 when the sellers dominated the market and put conditions for accepting offers from buyers has been reversed totally. Today it is indicated that for every prospective buyer searching the MLS listings, there are 11 properties squarely meeting their requirements of price and other parameters. This situation is likely to continue for at least another couple of years to come, as per the experts of Real estate in U.S.
