1. The Housing Market Dr. Pantuosco

2. The Housing Boom • From 2001-2007, home values rose by 50 percent

3. Credit Policy • Since housing prices were constantly increasing, banks began to loan money for houses to people who could not pay it back.

4. Bundled Loans • In order to receive more money to make loans, the banks would then package the home loans and sell them to investors. • This would provide them with money so that they could make more risky loans.

5. Housing Construction • Since so many people were buying houses for high prices, construction companies built as many houses as they could. • Each house they sold was extremely profitable.

6. The Beginning of the End • With all their money going to housing, people stopped accumulating savings in the bank. • Also, the price of goods was increasing due to inflation.

7. Falling Housing Prices • When housing price began to fall, the whole system began to unravel. • Many people owed more money for their house than the house was worth • Ex. House is worth $100,000 Family owes $140,000 on the house The family leaves the house and lets the bank have it because they cannot pay the difference

8. The Investor • The investor who bought the bundled loan from the bank is the one who is stuck with the loss. • They now own the houses that are worth less than they originally paid for the investment. • Ex. The investor paid $1,000,000 for the loans. They now own the houses associated with the loans that are only worth $800,000.

9. Greed • The problem arose from greed. • People wanted houses they couldn’t afford. • Banks wanted to make more money without considering risk.

10. Questions?