Real Estate Bear Market

Real estate bear market led to the subprime mortgage crisis in United States of America. Before the subprime crisis set in, the price of housing property in the country had increased manifold. The write up below highlights the similar facts.
Prior to the subprime crisis in the United States of America, the US economy was doing very well. It has been observed that in the past couple of years, the real estate value had escalated to USD$11 trillion. However, things have changed after the US subprime crisis and the real estate bear market has set in. This has caused a ripple effect whereby several emerging economies as well as major economies have slowed down.

Owing to the US subprime crisis, several banks had to be injected with additional capital to bail out several investment banks to meet the claims of customers. The price of houses is tumbling down. Wages have become stagnant and there has been a drop in real wealth. Due to the fact that the rates of interest were very low and the Federal Government had embraced various lending policies, which later proved to be faulty.

In the year 2006, sale of homes gad dropped by 8.4%. This drop was recorded as the biggest drop ever in the last 17 years. Not only this, the sale of new homes also declined drastically by 17.3%. This drop was the largest drop recorded in the last 16 years. It has come to the notice of many that majority of the people are not being able to hold on to their houses and are ultimately opt for foreclosures. The bulls in the real estate market have set forward few reasons for the decline in sales of houses.

The Baby Boomers are also responsible, as they are demanding for their second homes.
They are of the opinion that more and more people are immigrating
The Government has imposed stringent rules pertaining to the construction of houses

However, there are two main indicators by, which one may ascertain the status of the real estate market in the country. They are:

Price-to-rent ratios

Many schemes were worked out for safeguarding value of property pertaining to real estate bear market. The scheme consists in locking the value of the house against a minimal fee. By doing so, the value of the house remains constant. If the market value of the property falls, the value of the property does not fall. However, in the event when the price of the house rises, the same benefit may not be availed.


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