The Collapse of the US Housing Market: An Analysis

Over the past few decades, the US housing market has faced significant challenges, culminating in the 2008 financial crisis. This article delves into the multifaceted reasons behind this collapse, from financial unsustainability and wealth concentration to changes in economic policies and societal dynamics.

Financial Unsustainability and Wealth Concentration

One of the primary factors contributing to the collapse of the US housing market is financial unsustainability, rooted in wealth concentration. Over the years, wealth has become increasingly concentrated in fewer hands, leaving many households struggling to afford basic necessities. This imbalance has led to a situation where people have had to rely on multiple strategies to maintain their quality of life, including taking on debt and working additional hours.

However, these adaptations are only temporary fixes and have inherent limits. For instance, working every waking hour or relying on debt is a short-term solution that cannot be sustained indefinitely. In essence, the problem arises from the imbalance in income distribution. When household incomes fail to keep pace with increasing living costs, quality of life inevitably declines.

The Role of Real Estate Investment Trusts (REITs)

Leading up to the 2008 crisis, Republican bankers exhibited a strong affinity for Real Estate Investment Trusts (REITs). These securities trade on major exchanges and own, in most cases, operate income-producing real estate or related assets. The influx of REITs into the market contributed to the rapid increase in property values and mortgage availability, which, in turn, fueled the housing market's unsustainable growth.

The allure of REITs allowed banks to expand their profits significantly, as they could justify higher prices and interest rates without immediate impacts on their bottom line. This perverse incentivization led to a housing bubble, where the cost of housing far outstripped the affordability of the average middle-class family.

Housing Crisis Rooted in the 1970s

The housing crisis has its roots in the 1970s, especially following the passage of the Equal Credit Opportunity Act in 1974. Prior to this, it was customary for banks to consider only the income of the male provider of the household when approving mortgages. The landmark decision by the Supreme Court in this case aimed to promote gender equality by allowing women to qualify for mortgages based on their personal income.

While this was a positive step towards gender equality, it inadvertently led to a significant shift in the housing market. Suddenly, families could qualify for mortgages using two incomes instead of one, which drove up demand for homes and, in turn, housing prices. This dynamic, combined with aggressive marketing practices by banks, contributed to a housing boom in the 1980s and 1990s. However, when the bubble burst in the 2000s, the consequences were devastating.

Conclusion: A Societal and Economic Shift

The collapse of the US housing market is a complex issue with deep historical roots, influenced by shifts in economic policies, societal dynamics, and financial practices. It serves as a stark warning of the far-reaching consequences of financial unsustainability and wealth concentration. As we move forward, it is crucial to address these underlying issues and ensure that our economy and financial structures support a more equitable distribution of wealth and resources.