Decline in House Pricing Contributed to the US Subprime Mortgage - Essay Example

Earlier on, there was a widespread misconception regarding the decline of the housing and property market’s capital value. However, the price dropped to a figure below the value before the Great Depression in early 2006 (Immergluck, 2011). The homeowners who planned to sell the properties were unable to sell due to a massive fall in prices that led to “upside down" mortgages. Notably, the mortgages were greater than the property resulting in reduced incentives for homeowners. The graph below indicates the trends in housing sector prices (Sanders, 2008). Fig 1.1: U.S Housing Price CrashSource: (BBC, 2007)The housing sector experienced a bubble leading to the eventual collapse of the subprime mortgage market.

The subprime mortgages are provided to homeowners with below-average income (Christopher et al., 2008). With the trend in the housing sector, there was a need to engage in more subprime mortgages. Consequently, this led to mortgage delinquencies and foreclosures that caused the devaluation of housing-related securities (Sanders, 2008). Therefore, there was a reduction in business investment and household spending. Notably, these experiences were dominant in regions with high household debt and the highest housing price decline (Immergluck, 2011)