When did we start to borrow to purchase a house?
I am sure there was a time when in order to purchase a house you had to have cash to pay for it or 100% collateral to cover the cost of the house as in exchange a piece of land for a house or some other possessions that would qualify you to purchase such property. If we would have kept this system, house prices would still be substantially low compared to current prices.
To make things simple we can summarize that the reason why house prices skyrocketed as high as they got was because of high demand. As demand increased so did house prices, making them so inflated that sooner or later would lead to the infamous housing bubble.
Since we were reaching a point where the economy was getting stagnant, investors devised a plan to allow anybody who was able to breathe to qualify to purchase a house regardless of their credit history and whether or not they had a security blanket to pay for the house. When people get too greedy, they bend the rules, seek approval and bribe politicians to get things moving. It was obvious that whatever marked up went up, one day had to come back down and it did. I still believe the housing market hasn’t bottomed yet and it will reach a lower level then remain there for a good number of years.
What have you learned from this lesson? Will history repeat again 50 to 100 years from now –referring to the concept of a cyclic economy?
If you would have been in the power seat, how would you have handled this situation to begin with in order to avoid the chaos we went through?