Why did the housing market crash in 2007–2008?
A. Banks gave too few loans
B. Investors only bought safe assets
C. Too many risky home loans were given to people who couldn’t pay
D. Government banned housing sales
Answer (2)
The correct answer is C. Too many risky home loans were given to people who couldn’t pay.Leading up to the 2007–2008 housing market crash, banks and lenders gave out a large number of subprime mortages—loans to people with poor credit histories who were unlikely to repay them. These risky loans were bundled into complex financial products and sold to investors. When many borrowers defaulted, the housing bubble burst, causing home prices to plummet and leading to a global financial crisis.
The correct answer is letter C. Too many risky home loans were given to people who couldn’t payBanks in the U.S. approved many subprime mortgages—loans to people with low income or bad credit. These borrowers often couldn’t pay their monthly payments. At first, house prices kept rising, so it looked like a good investment. But when prices stopped increasing, many borrowers stopped paying. Houses were repossessed and sold for less money, causing huge losses for banks and investors. This chain reaction led to a collapse of the housing market, and the effects were felt around the world—including in export and manufacturing sectors in Asia.
