The United States housing bubble was an economic bubble that affected many parts the United States including Colorado, Nevada, Arizona, Florida, Oregon, Michigan and the southwest markets. The prices of homes started to rise and peaked in the year 2005, started to drop in 2006 and are still declining.

• The increase in foreclosure rates in the period between 2006 and 2007 finally led to a crisis in the sub-prime, mortgage, credit, hedge funds, and foreign bank markets by the year 2008. Furthermore a collapse in the housing bubble meant that it would have an immense impact on the other markets in the economy. The country’s mortgage markets, hedge funds, real estate, home supply retail outlets, and foreign banks stood to lose a lot of money.
• Housing bubbles usually start with tremendous increases in real estate prices followed by a collapse. This results in negative equity in many homes since the amount owed on the mortgage is more than the real worth of the property. In such cases strategic default may occur where mortgagors have the finances to pay for the mortgage but choose not to do so. The reasons behind this bubble are complex and can be attributed to lax lending standards, very low interest rates and speculation.
• As with any housing bubble the United States bubble was discovered in hindsight and many experts debated its existence. However by the end of 2006 it was apparent that the United States market was facing a housing bubble and was widely acknowledged by many financial experts. There are numerous reasons for this housing bubble and some are economical while others have cultural and political impetus.
• The mania for owning a house in the United States is one of the reasons that kick started the housing bubble. People always thought and some still think that the price of a house can never depreciate. This meant that many people started to buy homes as an investment tool rather than as a necessity. This in turn meant that when prices began to fall many chose strategic default or a foreclosure which further led to a decrease in the equity of homes.
• The speculative fever that gripped the United States economy in 2005 was also one of the reasons for the bubble. As many people began “investing” in real estate, the prices shot up and when they crashed many people and lenders lost millions of dollars. The lax lending practice where a down payment was not required and the income and repayment ability of the mortgagor was not scrutinized was also one of the reasons for the bubble to build up.
• Historically low interest rates were also one of the reasons for the bubble and many blame the federal arm of the United States government for the same. As interest rates fell to a mere 1 % the prices of homes went up. This is because the interest rates are inversely proportional to the value of the house. Many people blame the Federal Reserve for “engineering” the interest rates which it raised 17 times between 2004 and 2006 and then paused.
• All these factors mentioned above have played a role in the building up of the housing bubble and its inevitable bursting which led to huge financial losses. However the most important reasons for this bubble are sub-prime lending, lax lending practices, and government control (or lack thereof). The housing market in the United States is still reeling from the impact of this bubble along with the recession which has exacerbated this problem.

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