The Effects Of Post-GFC Regulations On The Housing Economy

Most people have heard of the global financial crisis (GFC) of 2008, but its full effect has been hard to follow. So can the tangible effects of the 2008 crash on the housing economy still be felt today?

What was the GFC Exactly?

To make things simple and easy to understand, we’ll start from the beginning. The term GFC stands for Global Financial Crisis, and it refers to the period of time between 2007 and early 2009. The GFC was a time when the global economy fell due to the downfall of the American housing market. The fall of the American housing market befell some of the strongest banks in America, which in turn brought the whole world to a financial crash. The likes of which had not been since the great depression in the 1930s.

The Main Causes of the GFC

Why the American housing market fell has been up for debate for years. 3 main factors have taken center stage. The first and most widely accepted reason was the excessive economic risks taken during a favorable economic climate. Excessive loans were being taken every day by bankers, investors, and everyday people. Loans were common for everything from houses to mortgages. 

The second reason was the exponential increase of borrowed money. Because of the favorable economic climate at the time, borrowing money became the norm. Big banks all around the world became increasingly reliant on lenders and each other, borrowing more money than they were paying off.

The third and final reason owed to the GFC was the loopholes in the economic system. The lax regulations allowed both banks and individuals to take out loans and borrow impossible amounts of money they were unable to pay back. Governments were unaware of how badly these bad loans would affect the financial system until it was too late. 

Once the proverbial “economic bubble” burst, all hell broke loose. The unfolding of the following events resulted in a full economic meltdown. Starting with the fall of housing prices in early 2006 leading to stress in the financial system. Buyers and borrowers who were unable to pay back their loans resulted in the drop of the worth of MBS stocks. This drop was felt by investors and banks not only in the USA but all around the world as well. This all culminated in the global stock market crash of 2008.

Current Situation

The current financial situation has gotten much better after the financial crisis. Today you’re able to find reasonable prices for everything from houses to fuel, without the effects of inflation. The financial and economic situation has stabilized much since 2009. In the infographic, brought to you by Compare the Market, you can see the regulations that are still in effect from the GFC.

What are the Effects of the GFC Regulations Today?

After the GFC panic had settled in, governments needed to act fast to remedy the damage. Up until 2008, the main source of remedying policies was brought up by banks, mostly to stimulate economic activity. Interest rates were lowered on everything from stocks to real estate. These almost 0 interest rate loans were offered from central banks to other financial institutions to try to stop the endless flow of debt.

After the initial first wave of damage control by the banks, the government stepped in. New policies were put in place to rectify what went wrong. New global regulations stopped any future “over-drafting loans” of this magnitude in their place. Governments increased spending to stimulate a “supply and demand” in an attempt to kick-start the economy. Some of the bigger banks were bought up by the government to save them from further economic ruin and to save the public from further panic.

In regards to the housing economy, after the crash, the situation remained changed forever. Although housing prices were at an all-time low, many lost their jobs, their savings, and their homes altogether. Some countries and economies were hit harder than others. It took the USA 9 years after the crisis to achieve the same levels of employment as before 2008. In 2021, some of the few tangible effects of the GFC that can be felt are the regulations put in place for mortgages. 

The GFC was a tough and difficult time. The many wrong decisions and poorly planned and regulated mistakes lead to one of the biggest financial meltdowns in history. As humans, we can only learn from our mistakes to make better decisions in the future. Because of the crisis of 2008, we now have better regulations and laws put in place to ensure that such an event never happens again.

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