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Testo da correggere dall'utente Jimmy__Presley
In August 2007, in USA began the worst financial crisis since 1929, after the burst of the housing bubble. But what is exactly a housing bubble? It's defined as a phenomenon where more and more houses are being built, to be sold to an increasing number of home owners and investors.
These “investors” don't buy a house to live in, rather they keep it 6 to 12 months and then they sell it at a profit and as a consequence these actions inflated the house market.
Between 1997 and 2006 many of these houses were bought on what are now called “Adjustable Rate Mortgages” (ARS), which are mortgages where for a few years you pay a low interest on them and then the interest readjust; some people speculated that the price of house would always go up but at a certain point the market collpased and with the interests of the mortgages higher than ever the homeowners couldn't pay their debt.
Who are the responsibles of this disaster? The investment banks gave loans to people who couldn't afford them, the so called subprime mortgages, just to speculate and make profits but even the investors are to blame for this crisis.
Wall Street banks, such as Lehman Brothers, Merryl Lynch and Fannie Mae and Freddie Mac were at serious risk and in fact Lehman Brothers, thr 4th largest investment bank in the US filed for bankruptcy and Merry Lynch was sold to Bank of America.
But how a downturn in housing prices did cause the collapse of the financial system? The crisis was complicated by innovative financial instruments whick Wall Street created and distributed; one of them is called CDS ( Credit Default Swaps); they are private contracts that let firms trade bets on whether a borrower is going to default and when it occurs one party pays off the other.
Firms and banks use these instruments as an insurance and to wager on the health of other companies. One othe big players in this “swaps game” was AIG, the world's largest insurance company which sold these financial instruments to many firms when the market was booming; they believed that AIG could provide a shield against loan defaults, but the big company made some mistakes in evaluating the risk of default.
The government in such cases, to avoid the failure of the entire financial system, has to make capital injections into banks which need money and so it was during the crisis of 2007-2008 and in this way it was restablished a little more confidence.
The burst of a housing bubble can bring about lots of problems and in 2008 it has been a disaster; and the question may be”could we have another housing bubble in the US? ” and the answer is... yes, only after 5 years from the WS breakdown.
In L. A and San Diego home prices are rising ahead of incomes; the price to income ratio is the basic afforability measure for housing in a given area and it compares the ratio of median house prices to median familial incomes and if the percentage is rising that means that home prices are increasing more than family income.
Mortgage interests are rising too, but are there presuppositions to talk of another bubble?
According to Redfin, a famous real state brokerage the 2007 bubble had different conditions: credit pre-bubble was extremely easy, whereas in 2013 it's tight; than, in 2007 homebuyers were borrowing money from banks whereas now the pay cash, moreover the ratio of home prices to income is relatvely low compared to the one of 2007.
Despite these differences the situation is getting crazy and people wondering if it's good time to become investors and dive into buying. As Redfin Chief executive says, more people is starting to talk about real estate, while in 2010, for example nobody wanted to touch on this subject.
Housing market in L. A, Washington and San Diego are at risk of a new housing bubble, prices are skyrocketing and the market is in danger beacause money is going to get significantly more expensive in the following 2 years.
The burst of a new housing bubble will damage the economic system which is beginning to recovery, but we can't foresee what will happen and the consequences.
lingua: Inglese
Conoscenza delle lingue: Madrelingua
These “investors” don't buy a house to live in, rather they keep it 6 to 12 months and then they sell it at a profit and as a consequence these actions inflated the house market.
Between 1997 and 2006 many of these houses were bought on what are now called “Adjustable Rate Mortgages” (ARS), which are mortgages where for a few years you pay a low interest on them and then the interest readjust; some people speculated that the price of house would always go up but at a certain point the market collpased and with the interests of the mortgages higher than ever the homeowners couldn't pay their debt.
Who are the responsibles of this disaster? The investment banks gave loans to people who couldn't afford them, the so called subprime mortgages, just to speculate and make profits but even the investors are to blame for this crisis.
Wall Street banks, such as Lehman Brothers, Merryl Lynch and Fannie Mae and Freddie Mac were at serious risk and in fact Lehman Brothers, thr 4th largest investment bank in the US filed for bankruptcy and Merry Lynch was sold to Bank of America.
But how a downturn in housing prices did cause the collapse of the financial system? The crisis was complicated by innovative financial instruments whick Wall Street created and distributed; one of them is called CDS ( Credit Default Swaps); they are private contracts that let firms trade bets on whether a borrower is going to default and when it occurs one party pays off the other.
Firms and banks use these instruments as an insurance and to wager on the health of other companies. One othe big players in this “swaps game” was AIG, the world's largest insurance company which sold these financial instruments to many firms when the market was booming; they believed that AIG could provide a shield against loan defaults, but the big company made some mistakes in evaluating the risk of default.
The government in such cases, to avoid the failure of the entire financial system, has to make capital injections into banks which need money and so it was during the crisis of 2007-2008 and in this way it was restablished a little more confidence.
The burst of a housing bubble can bring about lots of problems and in 2008 it has been a disaster; and the question may be”could we have another housing bubble in the US? ” and the answer is... yes, only after 5 years from the WS breakdown.
In L. A and San Diego home prices are rising ahead of incomes; the price to income ratio is the basic afforability measure for housing in a given area and it compares the ratio of median house prices to median familial incomes and if the percentage is rising that means that home prices are increasing more than family income.
Mortgage interests are rising too, but are there presuppositions to talk of another bubble?
According to Redfin, a famous real state brokerage the 2007 bubble had different conditions: credit pre-bubble was extremely easy, whereas in 2013 it's tight; than, in 2007 homebuyers were borrowing money from banks whereas now the pay cash, moreover the ratio of home prices to income is relatvely low compared to the one of 2007.
Despite these differences the situation is getting crazy and people wondering if it's good time to become investors and dive into buying. As Redfin Chief executive says, more people is starting to talk about real estate, while in 2010, for example nobody wanted to touch on this subject.
Housing market in L. A, Washington and San Diego are at risk of a new housing bubble, prices are skyrocketing and the market is in danger beacause money is going to get significantly more expensive in the following 2 years.
The burst of a new housing bubble will damage the economic system which is beginning to recovery, but we can't foresee what will happen and the consequences.
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