This later resulted in trouble, as the people who took out mortgages realized they could not afford to repay the loans that they had gotten at such a great value. The lack of ability to repay loans resulted in a downward spiral for the housing market and the economy as a whole, which put pressure on the housing bubble.
The housing bubble burst was a huge problem for Americans and was one of the greatest causes of the Great Recession. A housing bubble is caused by a rapid increase in the value of housing until it reaches unsustainable levels and then quickly declines. People were already losing large sums of money as they were forced to try and pay back expensive mortgage loans that they could not afford, and this loss of wealth meant their was a decrease in other consumer spending. When the housing bubble burst home values decreased drastically, and individuals began to realize that their loans cost more then what their homes were actually worth. This had a negative impact on many different markets. Along with the drop in home values, mortgage markets were negatively affected as individuals had to sell their homes (Luhby, 2012). There was a decrease in the demand for homebuilders, along with a decreased need for real estate and home supply stores. People could not afford their homes, let alone the luxury items that generally accompanied them. The housing bubbles are believed to occur periodically however; there are ways that this particular housing bubble burst could have been made less destructive, if not completely prevented.
The way mortgage loans were being created and sold was a large factor in the housing bubble burst, and the mortgage market could have easily been reformed. If mortgage firms had not been allowing their loans to be so easily attainable then less people would have had the means to take out loans, and only those who could afford to pay them off would have had the access to them.
