...rapidly. This is a "housing bubble." The danger in this situation is that the market will not be capable of sustaining the inflated prices, so the value of properties begins to come down, sometimes rapidly. Definition of a Housing Bubble * A "housing bubble" is a cyclical economic event where high trade volumes inflate prices, which ultimately become unsustainable, causing a lowering, or "crash" in values. Economic bubbles may be called by a variety of terms, including a speculative bubble, a market bubble or a balloon. Economic cycles of this nature are not exclusive to real estate. They have occurred throughout history in a variety of markets, including stocks, tulips and pottery. Contributing Factors to Unstable Housing Conditions * It could be argued that a housing bubble is really an example of a credit bubble. Although real estate is the underlying commodity, most house buyers use credit -- in the form of a mortgage -- to secure the property. Lax lending guidelines, rapidly inflating values, speculative buyers and the use of adjustable rate mortgages (ARMs), which can adjust to higher rates, are all factors in accelerating the likelihood of borrowers defaulting on their loans. The Effect a Housing Bubble Has on Local Markets * Tighter credit is likely to result after a housing bubble bursts; and although the effects following the downturn may have a broad effect on consumer purchasing power, the depth and duration of the housing bubble effects will vary drastically...
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...‘Cheap House Is Not Allowed’ Will China’s real estate bubble burst? Since the onset of the global financial crisis in 2007, China has faced some critical problems linked with the excess of liquidity in its internal market, due to the stimulus plan launched by the Government to soften the effects of the crisis. As a result China is now fighting against a high rate of inflation (especially food prices) and a high cost of property. While the inflation issue has been partially solved in the first term of this year, the fear for the real-estate market trend is still alive. This essay aims to critically analyse the real estate market in China, which is also strictly linked with the health of this country’s economy, by examining this issue from two different perspectives: from the point of view of those scholars who believe that the Chinese bubble will burst and from the point of view of those who believe that the Chinese market is still safe. First of all the essay will give the historical and economic background of the price rises in the Chinese real estate market, from the birth of this important economic sector to the global financial crisis. Secondly, in the core part, this paper will explain the main theory regarding the possibility of the real estate bubble burst and the counter argument. To better understand the actual situation in China there will be also a short comparison with the burst of the American bubble in 2007. In the conclusive paragraph some predictions...
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...HOUSING BUBBLE AND ITS IMPACT ON GLOBAL FINANCIAL CRISIS (2007) Housing bubble or real estate bubble is one of the basic problems that lead to global financial crisis in the late 2000s. When people’s wealth substantially increased, they will spend or consume more on everything, including houses. People demand for a better and bigger homes until in the late 90s, consumption boom occurred. The increased in demand has triggered housing bubble and makes the bubble became bigger. When demand on houses increased, of course the prices would be increased too. Until some point, the demand decreases or becomes stagnant, but the supply is still increasing, it will lead to sharp drop in the houses’ prices. At this point the bubble burst. Basically, the main reason that triggered the bubble and made it bigger was the policies of the Federal Reserve back in 2003. Referring to the reason, to avoid recession after the collapse of the tech bubble in 2000 and the 9/11 attacks in U.S during 2001, the Federal Reserve started to lower the interest rate from 6.5% to 1.75%. In 2003, the interest rate has been lowered to 1% and it remained there for a full year. However, the house prices were still growing up, higher than the interest rate. Even the house prices were growing at the rate of inflation, the Federal then encouraged people to buy houses. Federal has made an incentive so that people can go out and borrow at the rate of 1%. In addition, they created Fannie Mae and Freddie Mac, a privately...
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...Key words: Housing market, price, increase, decrease, the bubble in housing market Body: In 2010, from January to October, the investment of national real estate is 3.807 trillion Yuan with an increase of 36.5%, which is 105.1% of the annual investment, 3.623 trillion Yuan in 2009. In the first half of 2010, in the context of macroeconomic stabilization and recovery, the Central Government has issued a series of regulatory policies toward the housing price which increases too fast. The severity and enforcement of these control policies of the housing market are both higher than previously. The performance of the housing market 1. Consumers now are likely to wait and observe the housing market, which leads that the housing price in some cities has a small decline. There are many measures being taken by government to protect the public interest, so many people would like to wait and see how the housing market will develop. Most of them are not willing to accept the current expensive housing price, and they do not want to be entangled into the housing market after they finished their purchase with expensive cost. Therefore, the phenomenon has been speared out, and more and more people are waiting for the development of the housing market. The trades of housing market in some cities have decreased obviously. 2. The real estate is very popular as a means of investment. The domestic economy keeps increasing, at the same time the investment of the real estate becomes...
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...a House? Mr. Zou, who did not get married until he bought a house when he was 35 years old, sold his house last year and earned an extra profit about 200,000 RMB. In China, much more men did not get married because they did not own a house; however, housing price keeps soaring. According to National Bureau of Statistics of China, from 2001 to 2011, during the 10 years, the average selling price of commercialized buildings in China has increased 147% from 2170RMB to 5357RMB per square meter, especially in metropolitan cities like Beijing, Shanghai which increased 243% and 310% respectively. Nowadays, most youth and their parents in China are concerned about the price of apartment and hesitate to buy it; however, during the hesitation, the price has reached a high record. In my opinion, Chinese men should not only buy a house but purchase it as soon as possible because of the impact of traditional custom, fierce marriage market and the best investment strategy. To begin with, if people especially men want to get married; they would better possess a house at first because of the traditional customs. Confucius, who was born in 2500 years ago, was a philosopher of the Spring and Autumn period of Chinese history. The philosophy of Confucius has a great, deep and persistent impact on each generation in China until now. One of his most famous proverbs is “to rightly govern the state, it is necessary first to regulate one's own family” (Dawson, 1915) which in Chinese, means the man...
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...competition of the job, technology) Globalization and technology change competition of workforce. We cannot hope to compete with low wage nations around the world. 3. Before China took that place, which country was seen as a threat to US economic eminence? Japan 4. What are the forces that changed the composition of the workforce? Globalization, everything made in everywhere. Somewhere getting job from American, like China. 5. How do the factories built today compared to the factories built in the past as to the creation of high paying jobs? Job carious because insignificant demand. Recently, Customer in US are 70% spending constitute 70% gross profit. If consumer scared and enable to spend, wage continue drop Consumers are not willing to keep the economic going 6. Do businesses have enough money to expand and hire more people to work for them? Why are they not doing so? They don't need tax cut, more money. American have to 2 trillion of cash. They could afford to expand business and create a job, but they don't want to. They don't want to create job without customer. 7. Before the housing bubble burst, what made Americans feel wealthy and able to spend at a level that exceeds their earnings? Government spending 8. How does consumer spending today compare to the pre housing bubble burst? What explains this change? We need to spend more to get the demand back, gross back and job back. we need to spend more to get the demand back, gross back and job back...
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...China’s Real Estate Bubble China has been nothing short of a financial miracle. In just 30 years, this state-controlled economy became the world’s second largest, deftly managed by government policies and decrees. But one of the biggest concerns is the real estate and construction that may have created the largest housing bubble in human history. If you go to China, it’s easy to see why people concerned about this problem. Many place in China are building new apartments and houses right now. But nobody is living inside, many cities are just like ghost city, Why are they empty? They have actually been sold, but most of them are sold to those investors. Owned by people in China’s emerging middle class, who now have enough money to invest but few ways to do it. They’re not allowed to invest abroad, banks offer paltry returns, and the stock market is a rollercoaster. 15 years ago, the government changed their policy and allowed people to buy their own homes and the floodgates opened. People believed that their property price would always go up by more than inflation. Actually, property values have doubled and tripled and more. So people in the middle class have sunk every last penny into buying five, even ten apartments, fueling a building bonanza unprecedented in human history. No nation has ever built so much so fast. As we know, the growth of GDP is very important to a country, and one of the biggest facts inside the GDP is the real estate. Real estate has become the main...
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...reasons and impacts of the crisis as well as demonstrate the government responses. Furthermore, some lessons from the recession will be delivered at the end of the essay. It is very important to make clear of the crisis and integrate the financial theories with practice. II. Discussion The probable reason of the current financial crisis is recognised as the sub-prime mortgage segment of the USA for which were the results of long times of exceptionally loose monetary policy of some developed economies during the early period of last ten years (Mohan, 2009). After the internet bubble broken in the US more than ten years ago, most of the developed economies especially the US extremely eased the monetary policy. Only one percent of the Policy Rate had been announced in the summer of 2003 in the US (Mohan, 2009). This policy lasted for a long period and consequently stimulated the housing bubble of the America in the last a few years of 21st Century since it furthered investments and consumptions. The strong demands surpassed the output of the United States and there was an increase of the current account deficits of this country (McKibbin et al, 2009). The mild monetary policy and the extremely low interest rates stimulated the overconsumptions and to relax the standard of lending. As a result,...
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...Financial Meltdown Kevin Ung Economics 309, Fall 2010, Section 2 Professor N. Pulchritudoff December 9, 2010 In 2006, with home values high and credit flowing, authors David Wiedemer, Robert Wiedemer, and Cindy Spitzer accurately predicted the popping of the housing bubble, the collapse of the private debt bubble, the fall of the stock market bubble, the decline of consumer spending, and the widespread pain all of this was about to inflict on the rest of our economy. How did they get it so right while others got it so wrong? The authors saw a fundamental underlying pattern that others were—and, unfortunately, are still—missing. It may seem like the worst has come and gone, but it hasn't, say the authors in this new book. Things are not going back to how they were before. In Aftershock, the authors offer the definitive look at what is still to come—and what investors must do to protect themselves. This is not merely a down market cycle, the authors explain, nor is it a typical recession. It is a multi-bubble economy that is being hit by a "Bubblequake"—and the coming Aftershock will be far more dangerous. Aftershock details the next bubbles about to burst, including the Dollar Bubble and the Government Debt Bubble, while there's still time to protect your assets and position yourself to survive and thrive in this dangerous, yet potentially profitable new environment. They offer specific advice on how to profit and, more importantly, how not to lose money during the Aftershock...
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...Kong is a financial center with low taxation and enjoys free trade from all around the world. However, there are a plenty of people who cannot own or even rent an apartment because of the high housing prices. According to the Hong Kong Audit Commission(2014), there are 22.8 million peoples who are in a waiting list of public rental housing and most of them are from lowincome families, singletons, elderly and unemployed people. Most of them are living in urban slums known as "cage home" because they cannot afford the payment of rent or buy house. Therefore, It is demonstrated that the housing boom of Hong Kong not only had the positive impact, but negative. This essay will describe two of the factors influence the demand for housing in Hong Kong, including lowinterest rate and intensive population, as well as analyze the benefits and disadvantages impact of the housing boom. "A runup in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future"(Investopedia, 2014). The meaning of the housing boom is that housing prices continue to increase, because of the consumer would like to make a profits through sale of real estate. Hong Kong has a very lowinterest rate compared to other neighboring countries such as China, India and Korea. According to the Trading Economics(2014), the benchmark interest rate in Hong Kong was last recorded at 0.50 percent compared with other countries 6 percent, 8 percent and...
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...Running Head: CLEAN UP THE HOUSE 1 Clean Up the House: An Analysis of the Housing Crisis and the Endeavor to Lift the US Housing Market Neil Smith Wilmington University MBA 6400 Economic and Financial Environment of Business CLEAN UP THE HOUSE 2 ABSTRACT This is an inquiry of the Housing Crisis that culminated to the Great Recession of 2007-2009. A review of the aspects that led to the Housing Crisis will be considered. The causes that contributed to the Housing Crisis will range from the Community Reinvestment Act of 1977 to the greed and voracity that engulfed the Financial Markets. Such greed maligned the financial markets causing eventual bailouts and measures that the US Federal Government employed to avert a major financial depression. This paper will discuss definite recommendations that will improve the US Housing Market. CLEAN UP THE HOUSE 3 Clean Up the House: An Analysis of the Housing Crisis and the Endeavor to Lift the US Housing Market In today’s world it is generally accepted that a home is the most expensive thing that any American can buy. The idea of home ownership - a chance to own a home - is a dream fulfilled for many. To have a piece of property and call it your own is reflected...
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...Globalization and liberalization have contributed a lot in making the entire world a close knit economic unit. In an interconnected global economy recession and economic turbulence in one part of the world has the potential to disrupt the economies of other countries in a major way. The economic slowdown in US economy in 2008 caused by the burst of housing bubble engulfed the entire world in its grip. This research paper aims to give a detailed account of US Recession-2008 and its impact on Indian Economy. The financial crisis has not only affected United States of America, but also European Union, U.K and Asia. The Indian Economy too has felt the impact of the crisis to some extent. Though it is difficult to quantify the impact of the crisis on India, it is felt that certain sectors of the economy would be affected by the spill over effects of the financial crisis. INTRODUCTION The current global financial crisis is rooted in the subprime crisis which surfaced over a year ago in the United States of America. During the boom years, mortgage brokers attracted by the big commissions, encouraged buyers with poor credit to accept housing mortgages with little or no down payment and without credit checks. A combination of low interest rates and large inflow of foreign funds during the booming years helped the banks to create easy credit conditions for many years. Banks lent money on...
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...A recap of the events building up to The Real Estate Bubble, the causing factors of The Financial Crisis of 2008 and the likelihood and implications of an Economic Recession in 2016 Karan Sharat Nath Pace University, Lubin School of Business Kn31474n@pace.edu ------------------------------------------------- Table of Contents 1. Abstract 2. Introduction 3. The Real Estate Bubble and Great Recession 4. Signs that point towards a Global Economic Downturn 5. Conclusion: Consequences of a recession in 2016 6. Work Citied ------------------------------------------------- Abstract This research paper aims to briefly recap the events that led to the real estate bubble and global financial crisis of 2008, collect data that could indicate a financial downturn that could lead to a recession that is sparked in 2016 and understand the implications that a recession in 2016 would have upon the Global Financial System. The recession that ensued in 2008/2009 was the worst widespread downturn witnessed since the Great Depression of the 1920’s and 1930’s. Since the peak of the downturn the S&P has almost doubled and unemployment has dropped by nearly half. But at present many vital indicators that monitor US growth and economic activity are displaying so very troubling signs. With the majority of this growth over the last decade being enabled by central bank support and cheap money, expansion is not sustainable. Eventually the...
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...achieve efficient market system, however this kind of a system exists only in theory and not in reality, and so then what is the point of a free market system when it cannot be efficient? (Y. Hong, 2007) The rewards of free market system are realized only when it is executed in isolation. But in reality, markets cannot be left completely on its own and some regulation or government intervention is required. Government intervention even at its minimum will not be able to achieve efficient markets and thus it is better to have a well regulated system. Free market system has led to market failures that have had major adverse effects globally in the past. On the contrary, planned economies have also hampered innovation and productivity like China and thus some market system should be there. Y. Hong (2007) in the article mentions the Australian accounting regulations and describes them as very stringent resulting in negative consequences. Australian reporting...
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...needed to maintain its competitive position. The first part of the paper will briefly explain the subprime crisis, origins and impact on the financial world as new form of contagion. In the second chapter the consequences of the subprime crisis in the Spanish banking sector will be described. The last chapter of the thesis will present an analysis of the reforms made, using legal intervention. It will be concluded with a general point of view regarding the present situation of the Spanish banking system, the potential results of the current measures and the perspectives of new reforms. Contents 1 | Introduction | | 2 | Introducing the Subprime Crisis i. The subprime crisis: origins and evolution ii. Implications of the mortgage bubble The Spanish Banking sector: Before and after i. The evolution of Spanish economy until the Subprime Crises ii. A unique model in Spain: Banks and Spanish Savings Banks iii. Spanish economy snapshotThe change in the banking sector regulation | | 3 | * Banking regulatory failure and moral...
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