The challenges of the economics of the recession of 2008-09 are numerous. One of the reasons for the recession was the collapse of the property market just a couple of years prior. Within this market, there were many causes that contributed to the collapse Lahore smart city, but there are a few major elements we'll examine here.
One of the causes was the result of speculation. Homebuyers were buying houses on the anticipation that prices would rise in the future, but never counted on what could happen if they didn't. While real estate isn't going to decline to the point of having no value but it will fluctuate. House flippers were also holding properties which had lost value. They believed they could renovate the properties and get them back in order quickly enough. Some were successful, but others weren't.
Another reason for the downturn was that people were carrying over-debt overall. Housing was taking more of the income than it had ever. People were able to buy homes with very little or no cost. The result was that they were required to finance the entirety of the home's value.
These subprime borrowers ended up not being able to continue to pay their bills, and as a result, they went into default. With their homes in foreclosure and the market for real estate was now overflowing with inventory. Too many homes made homes worth less as the downward spiral continued.
In the financial mess was a variable interest rate. This is a fine plan for times when prices aren't too high, but if they rise, so will every month's mortgage payments. It's risky to be certain that has led to homeowners having to make huge payments. The payments were also made on properties valued less than the loan amount, also known as "under water".
Real estate investors from outside were edging away from markets too. Investors who were still on were being asked by banks for collateral after having been devastated by non-backed loans. Those investors who didn't have collateral sold assets to acquire one, which made the market more saturated.
It's difficult to remain the peace and remain calm when things are spinning out of control. People who were able to hold on could recover their investments, but it took a long time to see the extent of this. It takes overcoming the emotions and the urge to take control of situations. We tend to be risk-averse which is why investing for the long-term really goes against human nature. However, after every crash comes a return.
There were other external factors however, not as much. Hurricane Katrina destroyed many cities along the Gulf Coast, and those regions took a long amount of time to rebuild economically. After the loss of houses and incomes diminished, many fled the area and never returned. That is a loss in population that results in a decrease in the tax base and the harm done to the real estate market financially and physically.
