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Foreclosures and the U.S. Economy

As many of you probably know, the U.S. economy is doing poorly right now, with some economists saying that we are going into a recession, a period of major economic decline. The major reason for this downslide (decline) is that the number of home foreclosures is way up (increased a lot). A foreclosure happens when a homeowner cannot pay his or her mortgage (the money he or she owes the bank for the purchase of a home).

images.jpegWhy are we in this mess (bad situation)? Beginning six or seven years ago, the U.S. had a housing boom (big increase in activity). Interest rates (the fee a bank charges for people to borrow money) were low, so many people got home loans (money borrowed from a bank) to buy a home. Unfortunately, the banks were too eager (wanting to do something very much) to lend money and gave loans to a lot of people who could not really afford it. In addition, many of those loans had adjustable (able to change; able to go up or down) interest rates which automatically go up after a period of time. Between people who were either unrealistic (not practical or sensible) about their home-buying ability, and banks being too eager to make money, a crisis (big problem; great difficulty) has resulted. Companies are laying off (firing; dismissing) employees. The stock market is generally down and unpredictable (difficult to guess if something will happen).

California was one of the hottest (most active) housing markets in the country. For this reason, it’s not surprising that California is one of the hardest hit (most affected) states in the country: In 2007, there were nearly 85,000 California house and condo foreclosures. That’s six times more than in 2006, which had about 12,500.

Most economists agree: Things will get worse before they get better.

~ Lucy

6 Responses to “Foreclosures and the U.S. Economy”

  1. Valeriy Says:

    We, Russians can discuss this topic only theoretically. Because we just have not such a problem. As many of you probably know, here in Russia the business or service when people can borrow money from a bank to buy a house is at the very beginning of development. However, it’s always useful to know what happens in other countries experiencing such troubles.

    P.S. While reading that, I don’t know why, I’ve recollected Jeff’s mentioning of his neighbors in English Cafe 124, who have a mansion whereas Jeff himself has not. Jeff, I wish you had!

  2. ESLPodcast Google Group Says:

    Every day I see at TV news saying too much Brazilians are coming back to Brazil because this. A lot of immigrants work at construction building home.

  3. emiliano Says:

    Yes, all bad economy news here in Spain are U.S. fault, at least it is just what politician are talking about every day. All our problems are your fault, so it is quite easy to see in neibour’s house when we have to look for our mistakes, or our reasons to be here into a reccesion also like your country.
    But if anybody talks on the t.v. or radio about this bad news our Goverment says that’s not true, that our economy is safe, and if there are any problems the cause is because “just what you are saying in the blog”…….all because we have elections next month and they do not want to say people “we have problems too” and sure we’ll have hard times in future.
    Same as in U.S. many people asked lots of money to buy flats and as the interest are going up, now it is very difficult for them to pay the mortages. Houses and flats encrease the price twice o three times in five or six years, now are going down and many builders are stopped the constructions of new houses. So, lots of employees are laying off, and I think than more and more should be firing in future. Yes, I am pesimist about this matter and I think it is a world recession that nobody may know how long may last.

  4. Sara Says:

    Yes, that is really sad and it effected on many things. we had a strike which students hold today because of budget cut from universitis. I hope every thing go back to normal very soon. Thanks Lucy to bring this subject,actually I didn’t know what is the exact reoson of this economic crisis.

  5. Kohji Kuwabara Says:

    Japan has experienced similar real estate bubble followed by mortgage crisis in 1990’s. I think this phenomenon is very famous among the economists. After collapse of bubble, Japanese economy has been shrinking (getting worse and worse) during 10years or more. If the U.S.A follow the same way as Japan, then it will be terrible for the world economy. But, I think, US economy will recover soon because of huge diversity and wisdom which U.S has.

    form Kobe City in Japan

  6. Yuhtarou Says:

    I thinks the American to be able to revive the economy!