Reasons for the Housing Bubble

The article “The Housing Bubble in 4 Easy Steps” by Mark Thornton, presents reasons to why the economy is going through a crises. The article starts out by addressing the point that the Federal Reserve lowered their interest rate to 1% while our economy was going though an inflation. This caused a negative interest rate. By having such a low interest rate, mortgage rates fell very low. People started to buy houses as a result. Many banks doubled on the amount of real-estate loans. The people who would want to buy houses at a low interest rate, would be people who cannot afford to buy a house due to their bad credit. This is where Fannie Mae and Freddie Mac and other “very smart” institutions come into the picture. They made it seem as if bad loans and investments were less risky, but in reality they were very harmful. Due to this, there was an increase in demand for houses. The increase in demand caused a increase in price. It wasn‘t long after that prices of houses started to rise at a rapid rate. One fact that the article left off was that there are new homes which are sold for very high costs, and people cannot afford to buy them. As a result, we have many homes in the market that are not bought. We are in a crises today due to many of the reasons listed above. The only logic way to solve this crises would be to let the market fix itself without government interference.