Recession And Bear Markets: Recessions And Bubble Bursts
Recessions and bubble bursts happen when over a period of time Government has wrong fiscal policies
To stay in power some leaders adopt to wrong policies which give a boost to economies and their popularity but at the end same poor innocent people who had voted them become poorer.
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There is enough wealth in the world if it is divided properly and not used on wars and filling pockets of few and 5% of the top rich companies which control 90% of the world wealth every one can live a decent basic life with a roof on their head, food on their table free medicines for sick and education for their kids so that they can grow as responsible citizens of the world with some skills.
A big run between 1996 to 2006
The US real estate market had a big run between 1996 to 2006. In most of the areas in the US, home prices had more than a double digit growth. Contractors, builders, homeowners, and banks— everybody made money. Anybody who owned real estate became rich. Interest rates were at their lowest ever— between 5% to 8%. Money was available freely. People were able to finance these homes up to 110% of their value. Builders were making 20% to 50% profits on their home sales. Prices of labor and materials had skyrocketed but there was so much speculation going on as if there was no end. Subprime mortgages became very popular. There were no regulations and guidelines of who should be given mortgage. People with bad credit or no credit could buy homes without any down payments. Builders, individuals, mortgage companies also committed some frauds. Homes were appraised for a lot more than their real value and then people borrowed money out on home improvement loans under sub prime mortgages up to 125% of the value of their homes. Home prices were inflated to start with, then giving people 125% mortgage to the value of their home was a clear indication that people won’t be able to pay. A lot of people knew from the beginning that they could not pay and that they had no intentions of paying to start with. Banks could not foreclose on homes for 6 months and people lived in those houses for free.
The government had started raising interest rates and that burst the whole bubble. Before the real estate bubble burst people had spent money by borrowing against their homes on the false belief that property values can only increase and sometimes had a double digit growth for years which gave them a false high equities and Government and banks lent them money without taking into consideration their income. Most of the people have most of their financial nest in their homes and once they loose that then the whole economy tumbles down.
By Ashok of http://becomerichinfiveyears.blogspot.com
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