You have to wonder if there is some kind of correlation property bubble and the number of personal bankruptcy filings. As is evident by the recent recession in 2008, the obvious answer is yes. Since real estate bubble burst in late 2008 with the seizure of the credit crisis economy, there is definitely uptick in the number of personal bankruptcies are filed every month.
What caused the real estate bubble Many economists believe the real estate bubble is a direct effect of 2 things: unscrupulous mortgage lending programs, institutions and the ease of obtaining credit. Since 2000, the U.S. Treasury is setting interest rates at their historically low. What that means is that the institutional rate banks can borrow from the Treasury is set at a very low. Bank then turns around and pass these low rates to consumers and businesses they serve. So, if businesses and consumers have access to money (or credit lines) that low interest rates, which gives them a false sense of security. Many people without extensive financial background then you start spending money that does not really have. Particular case, the consumer can take out a larger mortgage on the house than he or she can afford. The consumer ends with buying a house beyond his or her means. These houses think that just because in the last 3-4 years, the real estate market is continually growing with no signs of slowing down, it means that the property market will continue to thrive. That is why the real estate bubble was formed.
When the real estate bubble burst, many individuals filed for personal bankruptcy
When the real estate bubble burst at the end of 2008, many people have discovered that their precious homes are not worth much. In fact, the stark reality is that since the collapse of the real estate market, the average house price has become significantly lower than the underlying mortgage of the house itself. The phenomenon is not just a symptom of middle and lower priced homes, but the problem even in high-end market houses.
Of a lot of houses bought their homes at the higher end of their budget, they ended up taking a much bigger mortgage. When the real estate market collapsed in 2008, the house prices fell. As the economy turned ugly and became the recession, house prices continue to fall. At some point, the underlying mortgages has become more than the market value of real homes. For example, a homeowner can have a mortgage of $ 400K, but the home is only sell able at $ 350K. So, if and when the homeowner decides to sell the house, he or she will have to dole out an extra $ 50K to pay off the mortgage company. This is a scenario that may cause many homeowners to look into personal bankruptcy because they can no longer afford a house.
This does not happen just a few houses in the U.S., where the value of their homes is much lower than the actual mortgage lenders are just as guilty of pushing the low interest rate mortgage terms, duping many home thinking that they can not afford high cost of homes. This is the main reason why we see uptick in the number of people filing for personal bankruptcy, when your house finished filing for bankruptcy protection, because they can no longer afford their home.
