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There were no proper checks, and the mortgages were given to people who would not afford if proper vetting was done.They were also giving them to the high-risk borrowers who had a poor credit history.
A real estate bubble refers to an economic ‘bubble’ which can occur in the global or local real estate market.
Usually, it follows a ‘land boom’ which is a rapid increase in the valuations of real estate and property until they reach an unsustainable level before they collapse.
The leverage component how a household can become indebted when buying a house.
In the year 2006, most of the areas in the world were believed to be in a housing bubble.
The borrowers then decided to sell off their mortgages.
Essay Real Estate
There was a problem for there was no one to sell to as most of the borrowers were experiencing similar difficulties.A real estate bubble is difficult to identify because it cannot be correctly estimated.Economists have developed economic indicators which help people find out whether or not a home in a certain area is fairly valued.It is not one cause that should be taken as the cause of the financial crisis.Some of the causes may have been effect long before the actual crisis was experienced.They gain momentum as more people enter into the market and let it flourish.This sets a stage for the ‘boom’, which is the next step of a housing bubble.Although, because this hypothesis stood upon observation of similar real estate market patterns of various countries of the world, it is still debatable.Some of the patterns include over evaluating and then borrowing a large amount, based on the overvaluations.It began with the credit crunch in mid 2007 following loss of confidence in the US financial system.The crisis started with the bursting of the subprime mortgages bubble, collapse of financial institutions and bailout of companies by the government.