Real Estate and Economy in America

Real Estate and Economy in America

Introduction

The 2008 financial crisis had impacted the whole world. It had impacted all parts of the world and had caused problems for all the businesses in the world. There were specific sectors that were impacted by this financial crisis and they were the ones who had suffered losses. People have described this financial crisis, the worst after the Great Depression. Although many measures were taken to reduce the impact of financial crisis, none of them worked in an effective manner. Countries had to suffer huge losses and the situation of their economies weakened with time and as the crisis got stronger (www.aim.org). The economic decline all around the world caused a lot of damage to different countries, and there are countries who are suffering from this crisis till now. This paper will discuss the impact of the financial crisis on real estate.

Discussion

Real estate was the sector that was impacted heavily and adversely. It suffered a lot during the financial crisis. A real estate bubble was created and was allowed to inflate inadequately i.e. without proper rules and regulations. It was important for the people to make sure that they work in a manner that is suitable for them in that situation. With this, the economies learnt a lot as they suffered in this area. The supervision of this field was very poor, which is why, this sector had to suffer a lot. There were improper lending terms and housing finance was not properly managed. Complex and difficult to understand financial instruments were introduced which the economies though would help the people. Little did they know, that not everyone is a finance expert and is not possible for them to understand as to how these instruments work in the market (www.unece.org).

Credit risk management was at its worst as it did not regulate the loans extended to the people under house financing. The credit rating agencies did not play their role and their ineffective strategies were the ones that caused this sector to suffer in terms of money. Due to such a chaotic situation, the investors were unable to understand the investment environment; therefore, took wrong decisions. The investors were the ones who were unable to analyze the risks associated with the investment in an efficient manner. This caused them to invest inappropriately and as a result they suffered losses.

The true levels of risk were not studied and managed and the regulations of Basel II were also avoided. All this impacted the real estate sector in a negative manner and also caused the investors to suffer a lot. The development of real estate market was adversely impacted by this financial crisis. This meant that the sector had to suffer a lot due to financial crisis and the inappropriate and inadequate steps that were taken. It was taken into account that tools such as securitization and mortgages were used frequently and that they were also negatively impacting the real estate ...