US Real Estate Bubble by leader6

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									U.S. Real Estate Bubble

     Source: Wikipedia
                 Timeline
• 1991–1997: Flat housing prices
• 1995–2001: Dot-com bubble
• 1998: Inflation-adjusted home price appreciati
  on exceeds 10%/year in most West Coast metr
  opolitan areas
• March 10, 2000: Dot-com bubble collapse. NA
  SDAQ Composite index peaked
                    Timeline
• 2000–2003: Early 2000s recession.
• 2001–2005: United States housing
  – 2001: US Federal Reserve lowers Federal funds rate
    11 times, from 6.5% to 1.75%.
  – 2002: Annual home price appreciation of 10% or m
    ore in California, Florida, and most Northeastern sta
    tes.
  – 2004: U.S. homeownership rate peaked with an all ti
    me high of 69.2 percent.
  – 2004–2005: Arizona, California, Florida, Hawaii, and
    Nevada record price increases in excess of 25% per
    year.
                     Timeline
• 2005–ongoing: United States housing market correctio
  n ("bubble bursting")
   – 2005: Boom ended August 2005. The booming hou
     sing market halted abruptly for many parts of the U
     .S. in late summer of 2005.
   – 2006: Continued market slowdown. Prices are flat, h
     ome sales fall, resulting in inventory buildup. U.S. H
     ome Construction Index is down over 40% as of mi
     d-August 2006 compared to a year earlier.
                     Timeline
• 2007: Home sales continue to fall.
   – The plunge in existing-home sales is the steepest si
     nce 1989.
   – The subprime mortgage industry collapses, and a s
     urge of foreclosure activity (twice as bad as 2006) a
     nd rising interest rates threaten to depress prices fu
     rther as problems in the subprime markets spread t
     o the near-prime and prime mortgage markets.
• 2008: Home sales continue to fall. Fears of a U.S. reces
  sion. Global stock market corrections and volatility.
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                                                                                                     Phoenix - AZ PHXR
                                                                                                     Los Angeles LXXR
                                                                                                     San Diego SDXR
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                                                                                                     San Francisco SFXR
                                                                                                     Denver DNXR
                                                                                                     Washington WDXR
                                                                                                     Miami MIXR
                                                                                                     Tampa - FL TPXR
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                                                                                                     Atlanta - GA ATXR
                                                                                                     Chicago CHXR
                                                                                                     Boston BOXR
                                                                                                     Detroit - MI DEXR

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           March 1997 July 1998
October 1995                               April 2001
                               December 1999                    January 2004 May 2005 October 2006
                                                    September 2002
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                                                                                                Minneapolis - MN MNXR
                                                                                                Charlotte - NC CRXR
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                                                                                                Las Vegas LVXR
                                                                                                New York NYXR
                                                                                                Cleveland - OH CEXR
                                                                                                Portland - OR POXR
                                                                                                Dallas - TX DAXR
150
                                                                                                Seattle - WA SEXR
                                                                                                Composite CSXR
                                                                                                Composite-20 SPCS20R



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           March 1997 July 1998
October 1995                              April 2001
                              December 1999                  January 2004May 2005October 2006
                                                  September 2002
   Subprime Mortgage Crisis
• Subprime lending
  – The practice of making loans to borrowers who
    do not qualify for market interest rates because
    of problems with their credit history or the inab
    ility to prove that they have enough income to
    support the monthly payment on the loan for w
    hich they are applying.
  – The word ‘subprime’ refers to the credit-worthin
    ess of the borrower (being less than ideal) and
    does not refer to the interest rate of the loan.
  – (‘Alt A’ is bewteen subprime and prime in terms
    of risk and thus interest rate.)
    Subprime Mortgage Crisis
• The share of subprime mortgages to total originatio
  ns increased from 9% in 1996, to 20% in 2006.
• Loan incentives including "interest only" repayment t
  erms and low initial teaser rates (which later reset to
  higher, floating rates) encouraged borrowers to assu
  me unaffordable mortgages believing they would be
  able to refinance at more favorable terms later.
• Refinancing was possible while U.S. housing prices c
  ontinued to increase during the 1996-2006 period. H
  owever, once housing prices started to drop modera
  tely in 2006-2007 in many parts of the U.S., refinanci
  ng became more difficult.
    Subprime Mortgage Crisis
• Defaults and foreclosure activity increased dramatica
  lly. By October 2007, 16% of subprime loans with adj
  ustable rate mortgages (ARM) were 90 days delinqu
  ent or in foreclosure proceedings, roughly triple the
  rate of 2005.
• By January of 2008, this number increased to 21%.
• During 2007, nearly 1.3 million U.S. housing properti
  es were subject to foreclosure activity, up 79% versu
  s 2006.
• As of December 22, 2007, a leading business periodi
  cal estimated subprime defaults would reach a level
  between U.S. $200-300 billion.
        Mortgage Walk Out
• Over the past few years – until spring 2007
  -, banks were willing to approve mortgage l
  oans with small or even zero downpayment.
• Interest-only loans also prevented buyers fr
  om building equity in their homes.
• This little or even zero equity lead people t
  o default their mortgage loans when house
  price fell below their equity in their houses,
  leading to more foreclosures.
     Bob Shiller on YouTube.
• Click Here!

								
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