The Housing Bubble is Back
It looks like the housing bubble might be coming back to haunt us again, did we not learn anything from 5 years ago? According to this article in Forbes by Carl Smith, the housing bubble is not anyone's fault in particular, just a competitive equilibrium. After a while lenders will start to lower standards to capture more market share by bringing in more money. Lenders will start to give money to people looking to own their own home, and these people will be unqualified. This will continue to happen because people will want to ride the bubble and make more money, and if they do not make riskier loans they won;t make enough money. There is no incentive to not lend to these people, and they won't be punished for making risky loans that could result in a bubble. It's strange to think that we will repeat ourselves and we know its going to happen. It's not a guarantee but it something that we must be aware of in hopes that we do not make the same mistake twice.
I thought that they passed laws against selling mortgages to underqualified customers?
ReplyDeleteI believe they did pass laws against selling mortgages to under qualified customers. If we keep giving out loans that we know people will default on and not pay the banks back we will go into another recession and the economy will be even weaker with all these bailout packages. I believe banks should give out loans to people who show a little bit of promise, but do not give out loans that make no sense. In all with the economy improving we should be smart about who we give loans out to so we do not face another housing bubble.
ReplyDelete