The beginning of the crisis occurred in the housing sectors in five states in the U.S., namely: Arizona, California, Florida, Nevada and Virginia. The housing market crash in these five states caused financial markets across the world to momentarily break down. How could the housing market in a few states cause such a big effect? The answer lies in the way mortgage lending has become an international market.
Figure 11.2 shows the home prices in two big U.S. cities. These two cities are typical for the price behavior in the five states, experiencing the housing market crash. Figure 11.2 shows how from 2001-2006 home prices rapidly increased, and then in 2007 the prices fell back down even
faster. Note that, in particular, in 2004-2006 the prices in both cities show a remarkable rise.