1. How did the rising cost of real estate affect the Financial Crisis?
Trevino and Nelson contend that the financial crisis of 2008 was caused in part by an unprecedented flow of financial capital into commercial and housing markets. People at the time were under the impression that investing in real estate would be a safe and conservative option. According to Trevino and Nelson, “there had been relatively few instances of real estate value declining” so naturally, people put their money into what had always been considered a safe investment. However, what many did not expect was real estate becoming an overwhelmingly popular way to invest.
Aided by historically low interest rates, by the early 2000s, demand had overtaken supply and the value of homes soared. People bought houses with no down payments in anticipation that their homes would be worth more in a few years than what they had paid for it. Homeowners mistakenly believed the value of their real estate could only increase. As a result, homeowners spent money on things under the premise that they could afford them based on the value of their homes. This would come back to bite them when housing values fell off a cliff in 2008 and 2009. Many homeowners were left with no choice but to declare bankruptcy and walk away from their house. Ultimately, the rising cost of real estate led people to spend more, leaving them with little when the housing bubble burst.
2. Would Mills argue that having sociological imagination is beneficial to society?
Mills argues that having sociological imagination is critical for both people and societies to grasp. It would make society better in the sense that people would be more open-minded, and they would be able to answer questions by relating their personal lives and situations to societal issues. A person using sociological imagination is more able to think and act critically in accordance with evidence both relevant and irrelevant to himself/herself. For Mills, the key to understanding the value in such a perspective is in appreciating that one can only understand the motives, behavior, and actions of others by locating them within a wider and more meaningful context. So, yes, Mills would maintain that having sociological imagination is beneficial to society as a whole.
What is the current real estate situation? How can we prevent the housing bubble from bursting again?
Real estate value is rebounding in full swing. Prices are on the rise. According to a recent report by Corelogic, “House prices are up 6.3% year-over-year in October, the largest increase since 2006 and eighth consecutive increase in home prices nationally on a year-over-year basis.” The future looks bright as well: J.P. Morgan thinks prices could gain another 10 percent in the next 12 months. Of course, there are reasons too be skeptical as this is the second time that prices rallied since the bottom fell out in 2006. Will this growth continue? Or is it the real deal this time? Something else to consider is just how much do we want real estate value to grow? It was surging prices that initiated the collapse in the first place.
There’s already talk of the next housing bubble. As the market improves, we need to protect ourselves by shifting away from the incentives that helped create the real estate bubble that trapped us. We’d like to think that hard lessons were learned. However, we must stop relying on credit and bad mortgages. As the housing market recovers, we need to make some decisions that allow the housing market to rise on a strong, sustainable foundation.