The U.S. Housing Bust – From Boom to Bust
Forces converge to fuel the biggest American housing boom since the 1950s: plunging interest rates, exotic new Wall Street securities that flood the mortgage industry with cash, and easier loan packages for immigrants and others with less-than-stellar credit.
Banks and other mortgage lenders notice weakness in the housing market. New houses sit unsold and foreclosures rise as people who bought homes with adjustable-rate mortgages see sharp spikes in their monthly payments. Central bankers and other watchdogs are caught by surprise.
When subprime lenders implode, the contagion spreads quickly to Wall Street, which had packaged risky mortgage loans and sold the securities around the world. Investors panic that the housing collapse will reverberate through the rest of the economy.