What Caused the Housing Bubble Disaster of 2008-2009?

Looking around at the economy today, you begin to wonder what caused the housing bubble? 

If you listen to the media, you will receive answers such as: correction of inflated home values, low interest rates, and the inability of borrowers to handle increased monthly mortage rates once their interest-only loans converted to combined principle and interest payments.

But look closer and you will see things that the media brush over but never highlight. 

At the end of the Clinton administration, mortgage lenders were forced to offer mortgage loans to lower income borrowers.

This was done so that every American could partake of the “American dream” of owning a home. 

However, it did not take into account that these lower income borrowers were not able to afford all of the costs of home ownership.

Yes, they could make the mortgage payment, especially if it was an interest only payment, and if the payment was equal to or just above the amount they had made for rent.

Because there are hidden costs to up-keep homes, if an appliance breaks, for example, rather than calling the landlord to foot the bill, the lower income homeowner now had to cover the cost.

As these lower income homeowners faced the real costs of home ownership, they were not able to pay other bills, thus affecting credit card companies.

The U.S. Housing Bubble

Low Rate Buy Now Pay Later Loans

Low interest rates also played a part in what caused the housing bubble.

Low rates equal low payments that most individuals cannot resist its like cheese to a mouse.

And if you want an even lower payment, you opt for an interest only payment or an adjustable rate mortgage.

For the home owners who had adjustable rate mortgages, the interest rates had risen by the time the rate was to be adjusted, so the monthly payment increased.

Buy Now Pay Later

Most home owners do not save money, so when their payment increased, they did not have the available cash to handle it.

They have no cash in savings because they have other payments in the form of credit cards that eat up any surplus they might have made during the month.

Add to that the fact that one can watch television, listen to the radio, or read a magazine or newspaper, there are ads everywhere that want to part you from your money.

These advertisers know how to market to Americans emotions with reasoning like; “You just HAVE to have this in order to be happy, or to fit in with the crowd, or to keep up with the Joneses”.

In order to afford so many great must have items; there has been a surge of credit card debit in America, this indebtedness has contributed to what caused the housing bubble.

Who is Responsible?

So looking at what caused the housing bubble, you have to consider a presidential administration that demanded loans be made to people who could not afford them and look at the combination of marketing efforts of advertisers and credit card companies.

In a democratic society, we have to look at social responsibility.

With true capitalism, there is a moral obligation to accept and adhere to personal responsibility.

The true cause was lack of responsibility. Government was not responsible enough to recognize that their requirements put an undue burden on the people to whom they were looking to instill hope.

Advertisers and credit card companies did not assume the responsibility to encourage people to spend within their means.

And individuals did not exhibit personal responsibility to live within their means.