Before the beginning of the financial crisis in 2007, the residential and
commercial real estate markets experienced a pricing bubble burst, which led to
disastrous effects. In the years leading up to the crisis, the American real
estate sector was booming: housing prices rose substantially, banks were
lending a large number of low quality “subprime” mortgages, and the
securitization of these mortgages was unregulated. Soon after housing prices
began to fall in 2006, a wave of subprime mortgages defaulted.
Due to the significant interconnectedness of the financial system, the breakdown of
national housing markets reverberated throughout the U.S. economy and set off
a crippling recession that systemically weakened and even destroyed important
American financial institutions.
