The U.S. housing market Essay Example

was a 4% year-over-year decrease in home prices, and unfortunately, there are no signs of this trend slowing down or reversing. To put things into perspective, existing home sales experienced a 19% year-over-year drop back in October 2007 - which was the most severe case since 1982. As if that wasn't bad enough news already, stock levels for unsold homes have also increased significantly over the past two years - by almost 60%, to approximately 4.4 million.

Initially, banks and brokers assured investors that the subprime mortgages, CDOs, and CLOs they had invested in would incur minimal charges during Q2 of 2007. However, as the housing market correction exceeded expectations, it was revealed that undervalued securities were worth only 97 cents on the dollar while their bonds lost over fifty percent of their value. The reason for this discrepancy was that internal valuation models failed to accurately reflect reality. Due to a strong performance in the first two decades, analysts had predicted the current state of the housing market for some time.

From 2000 to 2005, the value of residential real estate in the United States rose significantly. In 2000, American households possessed $8 trillion worth of real estate, which comprised just 40% of their financial assets. Nevertheless, by the conclusion of 2005, household real estate had surged in value and totaled over $19 trillion or roughly 56% of all household financial assets.

An increase of around $10 trillion was observed in the real estate market.