Housing Crisis The housing crisis was a banking emergency that occurred in 2008. This crisis took a huge toll on the US economy. There was a lot of borrowing going on because banks were giving out loans to people they knew couldn't afford to pay back, which meant a lot of money was being given out. Even people with bad credit were able to take out subprime loans, which are loans given to people who will have a difficult time paying back the loans on time. These loans also came with higher interest rates. Normally, people with bad credit or who couldn't put down high down payments, found it difficult to take out a mortgage and were often denied. Soon high-risk mortgages became more common, increasing from 5% to 20%. This resulted in a lot of people not being able to payback their loan, and forcing them to take out more loans. It wasn’t long until banks and investors started to lose money, the prices of houses went down and the housing market collapsed. More and more people began taking out loans in the early 2000s when interest rates were low. This meant people could borrow more money with lower monthly payments. …show more content…
People expected the price of their houses to continue to go up so they would be able to refinance their home. This never happened, however, as the housing bubble burst in 2007 when more than 25% of subprime lenders filed for bankruptcy. The price of houses fell so much that homeowners, even ones who had put down large down payments, had trouble attempting to sell their houses in order pay back their mortgages. This crisis was thought to only impact the housing market, however ended up greatly affecting the entire economy as well due to the fact that no one was buying houses so consumer spending was low, and because of all the loans that were not being paid back, the overall wealth was