Still talking about bubbles, this time going a bit more into detail regarding the housing bubble.
So, what was this housing bubble?
Due to the economic background, house prices were rising steadily. Houses turned into great investments + you could live in them, you know.
Of course, financial institutes noticed this trend, and started to exploit this investment opportunity. People wanted to buy homes. How will they buy homes?
Loans.
Uh-oh.
Banks started to issue more and more loans for houses, because houses are great investments, right? What could possibly go wrong?
More and more people who didn't really qualify for a loan got a loan anyway. This contributed to the financial crisis a lot as well, I'll be talking about this in a later post.
However, after a while, house prices started to decline.. Homes weren't a great investment anymore, and you had a bunch of people, who couldn't possibly pay back their loans, with homes that are losing their value.
Pop goes the bubble. A lot of people couldn't affor their loans anymore, they lost their homes - meanwhile banks didn't get their loans back. Financial crisis in the making.
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