From the course: Economics for Everyone: Housing Markets in Crisis

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Ingredients of a housing crisis

Ingredients of a housing crisis

From the course: Economics for Everyone: Housing Markets in Crisis

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Ingredients of a housing crisis

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- There are three critical elements that can lead to and cause a housing crisis. The first is the overextension of credit. This is most notoriously something that we saw in the mid to late 2000s. Essentially too much money was given to too many people who were too high a credit risk with instruments they didn't understand completely. Fortunately, since the housing crisis, banks and the US Federal Reserve have been much more careful about mandating stress testing and monitoring credit worthiness. In fact, the credit worthiness for most mortgage issuances since the end of the Great Recession in 2009 has been significantly higher than before the crisis. This reduces the risk of future housing crises. But an overextension of credit isn't the only thing that can cause a housing crisis. The second element that can contribute to a housing crisis is general economic weakness. What's going on in the job market? Are there a lot of…

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