A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper

Abstract

A recession began in December of 2007. The general consensus is that the primary cause of the recession was the credit crisis resulting from the bursting of the housing bubble. This paper discusses the four primary causes of the housing bubble-low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance. This paper concludes that the combination of these factors caused the housing bubble to be more extreme and the resulting credit crisis to be more severe.