What is the reason caused the local housing market collapse during the past two years?

Question by Malex_1doal J: What is the reason caused the local housing market collapse during the past two years?
What is the reason caused the local housing market collapse during the past two years?

Best answer:

Answer by Joe Mama
Too many overpriced houses on the market, bad loans coming due, interest rates climbed for awhile, people are losing their jobs. They all thought they were going to get rich and kept sucking the equity out of their houses to buy new SUV’s, vacations and boats. It’s over now baby!

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5 Comments → “What is the reason caused the local housing market collapse during the past two years?”


  1. gobonzzo

    Oct 08, 2013

    Two main reasons, and the first reason caused the second:

    (1) Mortgage companies and banks make loans to people who did not really qualify, or made loans for far larger amounts than the applicant could afford based on the lenders’ own guidelines, and this resulted in

    (2) People could not afford to make their payments because they did not really qualify for the loan they got and because the banks qualified them for more than they could afford and because of this PEOPLE IN GENERAL WERE ABLE TO PAY FAR TOO MUCH FOR THE HOMES THEY BOUGHT. This point is critical. Bad lending prctices made it possible for people to buy houses at highly inflated, unrealistic values.

    If people could only qualify for loans in the range of $ 50,000, they are not about to be shopping for homes priced at $ 300,000 or $ 400,000, they will be looking for homes priced around $ 60,000 – $ 75,000.

    But if people are told they can get loans in the amount of $ 300,000 or $ 400,000, they are going to shop for homes priced more like $ 400,000 or $ 500,000. Now if in both instances the income and all other personal information is the same, you can see why banks’ OVERQUALIFYING people caused both the home prices to be run up to high levels and then caused a big increase in foreclosure rates.


  2. Mark K

    Oct 08, 2013

    People forgot that we live in a cyclical economy. Everyone was believing that the price of houses would go up forever. People overbought ( bought more house than they could afford ) in the belief that they would sell in a few years and make money. Along came adjustable rate mortgages and interest only mortgages and soon people that could not afford houses were buying.
    Inevitably the economy slowed and people found they had houses that they could no longer afford and were not going up in value so they tried to sell and more houses went on the market then were being bought and prices flattened and then began to decline.
    The thing to keep in mind is that still less than 2% of the mortgages in the US are in foreclosure. The new media is making things sound much worse than they are.


  3. jim_merrick

    Oct 08, 2013

    Many factors. 1. Banks lending more than people could afford. 2. borrowers not being responsible during loan closing and accepting risky products such as interest only or Arm products that did not suit their situation. 3. Declining home values after years of record rising values 4. the cyclical nature of the market. Markets cannot always be a sellers market and the housing market has been that way for some time.


  4. jeanniep

    Oct 08, 2013

    lenders lending money to people who don’t qualify and don’t put 10-20% down
    buyers that do not read contracts


  5. Rush is a band

    Oct 08, 2013

    Which local market are you talking about? Detroit? Cleveland? San Diego? Miami? Las Vegas? They all have different reasons…

    good luck!


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