Grantham University Why Did Housing Prices Rise Rapidly During 2002 to 2005

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pbyn87

Economics

Description

After reading Special Topic 5, write a 2-page paper answering the following:

Why did housing prices rise rapidly during 2002 - 2005?

Why did the mortgage default rate increase so sharply during 2006 and 2007 even before the 2008 - 2009 recession began?

What did the Community Reinvestment Act have to do with the housing bubble and collapse?

Cite your sources as needed. Use APA formatting.

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Explanation & Answer

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Running head: HOUSING COLLAPSE PAPER
Housing Collapse Paper
Name
Institution Affiliation

1

HOUSING COLLAPSE PAPER

2
Housing Collapse Paper

Why Did Housing Prices Rise Rapidly During 2002 - 2005?
It was a recession period that induced the Fed to adopt the highly expansionary monetary
policy. As the system was applied, the interest rate was kept at the lowest level in history by the
Fed. With the interest rate being low, it led to an increase in investments, particularly in housing
assets (Taylor, 2007). Therefore, the increased demand for houses led to a rise in their prices.
And thus, it led to the emergence of mortgage-backed securities, financed with short term
leveraged lending. The outcome of this was the increased default of mortgage rate, and the
mortgage-backed ...


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