Question

Explain why the housing market follows an up-and-down cycle.

Answer 1

Well, its actually bit complicated but Ill get into one of the biggest issues.

So, 2008, seeing that youre in high school, you were most likely here to experience it.  There was the huge economic collapse building up because houses were gaining worth.

Because of this, investors began to see a chance at making large sums of money by doing something that you would think would end up bad.

Giving loans to people with bad credit score to buy houses.

They knew these people were more likely to default on their loans, the investor would then by law own the house and because prices are rising, they know they are going to make a ton.

This kept building and building and the houses were being defaulted on constantly and overtaken.

Well, supply and demand.  You have a ton of houses with people kicked out and the people that need houses are the people with bad credit score that were just kicked out.

So there was a need for housing, but only for people who could not afford it.

The pricing of housing plummeted and many investors who had on credit made the investment, had to declare bankruptcy.

This is obviously a more simple overview but it was so bad that the economy dipped down to its lowest point since the great depression.  Government worked very hard to try and control the situation and contain it from causing the final economic collapse of society and right now, we are in an "okay" economy so it seems that the restrictions worked.

Government had to intervene in the free market because if they did not, the economy would collapse.

And just to add, by saying we are in an "okay" economy, thats an understatement.  Its insane the amount of stuff we have compared to other countries.

You may think that if we chose a random person, he would kinda be like you.  Well, turns out we are the minority in the world.

There are only around 43% of people with access to internet.  People have easier access to phones than they do to clean water.

The economy is complex but I hope this peaked your interest in it