9781422281185

able to buy houses later if the price kept going up, so they hurried to buy themselves. Others hoped to buy houses and sell them again at a higher price to make big profits. This practice is called speculation . Because most people did not have enough money on hand to purchase a house, they went to banks to borrow money. Banks loaned money and charged interest to the borrower. Many lenders gave loans to people who might not be able to pay it back, hoping to make more from interest themselves. The boom times lasted for a decade. The highest prices happened in 2006. Then in 2007, prices fell sharply. No

The housing bubble burst in 2007. Banks had extended credit, in the form of home mort- gages, to many people who were barely able to afford the payments. To avoid high pay- ments, many borrowers took out adjustable-rate mortgages. These had a lower initial interest rate. But as the low introductory-rate mortgages reverted to regular interest rates, borrowers were unable to pay. They defaulted on the loans.

Economic Booms and Busts

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