The Main Reason for the Housing Price Crisis in 2000s in California in the United States of America with Recommendations for the Recovery

By

ACKNOWLEDGEMENT

I would like to thank my supervisors, friends and family, without their support this research study would not have been possible.

DECLARATION

I adjudge that the entire content of this dissertation is entirely my own work; the content used in this dissertation has not been submitted before in any educational institution and represents my own opinion.

Signed __________________ Date _________________

ABSTRACT

In this research study the aim is to find out the reason of housing prices crisis in 2000s in California in the United States of America. In this study the qualitative secondary research methods were used. The data were extracted out from the secondary sources and via semi structured interviews. The interviews will be conducted from the real estate owners of California. The U.S. housing market has recently displayed highly unusual behavior. Real prices dropped an unprecedented 32 percent. The average time to sale (the inverse of liquidity) increased from 3.5 to 15 months. The vacancy rate also increased substantially, from 2.1 to 2.9 percent. Housing is an important market. Home equity comprises over 60 percent of household wealth for middle class households1 and housing services constitute about 17.4 percent of total consumption. Housing markets played a key role in the recent financial crisis. The crisis in the housing market was not only a contributing factor to the problems in the financial industry that spread throughout the economy, but also a direct and significant source of economic hardship for countless Americans. While mortgage based securities were at the root of many of the problems for the financial industry that touched off the overall financial crisis, the financial crisis prompted a widespread recession, and the recession in turn produced additional problems in the mortgage industry for lenders and borrowers alike.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

LIST OF FIGURESVII

LIST OF TABLESVIII

CHAPTER 1: INTRODUCTION1

Background of the study1

Research aims and objectives4

Aim4

Objectives4

Research rationale4

Research questions5

Dissertation layout5

CHAPTER 2: LITERATURE REVIEW7

Housing prices crisis in US7

Types of housing bubbles9

Metropolitan Scale Difference in Housing Value Change11

Foreclosure16

Us Housing Collapse: Contextual and Policy Framework18

Residential housing prices20

Subprime Lending21

Exotic Mortgages23

Fraud for Profit26

CHAPTER 3: METHODOLOGY28

Introduction28

Research design28

Statistical analysis29

Regression Equation30

Anova31

Data collection31

Secondary Research Methods31

Interviews32

Survey population33

Sampling method33

Sample selection and recruitment34

Sample size and selection34

Sources for searching literature34

Using keywords34

Time table35

Gantt chart35

Summary and Transition35

CHAPTER 4: ANALYSIS AND DISCUSSION36

Data Analysis36

Interview analysis36

Reason of California housing bubble40

Correlation45

Regression Coefficients46

ANOVA47

Recommendations for housing bubble in California48

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS50

Introduction50

Conclusion50

Recommendations54

Future directions55

REFERENCES56

APPENDICES64

APPENDIX A64

List of tables64

APPENDIX B68

List of figures68

APPENDIX C70

Interview questions70

LIST OF FIGURES



Figure 1: Foreclosures by State, 2010 Source: RealtyTrac.com, 2010

Figure 2: Annual Growth of Housing Prices Index vs. Its Fundamentals

Figure 3: Market Value of today's median priced Los Angeles, California from 1987 till present

Figure 4: National Foreclosure and California, source www.mybudget360.com

LIST OF TABLES

Table 1: Year over Year Housing Price Change, December 2010-2011

Table 2: U.S. 20-city Index Sources: S&P/Case-Shiller; NYTimes.comCHAPTER 1: INTRODUCTION

Background of the study

The real estate crisis in the U.S. is also called sub-prime crisis, financial market crisis or global economic crisis. This housing crisis hit the world economy in 2007 and ...