Impact the United States
In fact, 2007 GDP growth came in at 2%. But economy-watchers didn't realize the sheer size of the subprime mortgage market. It created a "perfect storm" of bad events.
First, banks were not as worried about the credit-worthiness of borrowers. They resold the mortgages on the secondary market.
The National Association of Realtors reported that the median prices of existing home sales fell 1.7% from the prior year, the largest such decline in 11 years. The price in August 2006 was $225,000, the biggest percent drop since the record 2.1% decline in the November 1990 recession.
Prices fell because the unsold inventory was 3.9 million, 38% higher than the prior year. At the current rate of sales of 6.3 million a year, it would take 7.5 months to sell that inventory, nearly double the 4-month supply in 2004. However, most economists thought it just meant the housing market was cooling off. That’s because interest rates were reasonably low, at 6.4% for a 30-year fixed-rate mortgage.