DOCSLIB.ORG

The Great Recession of 2007 and the Housing Market Crash: Why Did So Many Builders Fail? Mohamad Ali Hasbini University of South Florida, [email protected]

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Great Recession of 2007 and the Housing Market Crash: Why Did So Many Builders Fail? Mohamad Ali Hasbini University of South Florida, Hasbini@Mail.Usf.Edu University of South Florida Scholar Commons Graduate Theses and Dissertations Graduate School October 2017 The Great Recession of 2007 and the Housing Market Crash: Why Did So Many Builders Fail? Mohamad Ali Hasbini University of South Florida, [email protected] Follow this and additional works at: http://scholarcommons.usf.edu/etd Part of the Business Administration, Management, and Operations Commons Scholar Commons Citation Hasbini, Mohamad Ali, "The Great Recession of 2007 and the Housing Market Crash: Why Did So Many Builders Fail?" (2017). Graduate Theses and Dissertations. http://scholarcommons.usf.edu/etd/7031 This Dissertation is brought to you for free and open access by the Graduate School at Scholar Commons. It has been accepted for inclusion in Graduate Theses and Dissertations by an authorized administrator of Scholar Commons. For more information, please contact [email protected]. The Great Recession of 2007 and the Housing Market Crash Why Did So Many Builders Fail? Lessons for the Local Homebuilding Industry by Mohamad Ali Hasbini A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Business Administration Muma College of Business University of South Florida Co-Major Professor: Joann Quinn, Ph.D. Co-Major Professor: Timothy Heath, Ph.D. T. Grandon Gill, D.B.A. Paul Solomon, Ph.D. Date of Approval: October 13, 2017 Keywords: Bubbles, Sub-prime lending, Management Practices, Entrepreneurship, Financial management, Business Failure Copyright @ 2017, Mohamad Ali Hasbini DEDICATION I dedicate this work to my wife Sawsan whose patience, understanding, and sacrifice made life a joy for me the past thirty years. To my children Leena, Zeina and Jad, I could not have achieved this momentous task without your support. Leena, a special thanks to you for being my role model. To my late father Abdul Rahman and my mother Nadia, this honor is for you. ACKNOWLEDGMENTS I would like to express my sincere appreciation to all faculty members who guided my educational journey at U.S.F starting as an undergraduate through my doctoral years. Special thanks to Dr. Robert Keith for believing in my abilities and giving me that unique chance during my early graduate years. My deep sense of gratitude goes to my Chair, Joann Quinn, Ph.D. and Co- Chair Timothy Heath, Ph.D. for their extensive guidance and encouragement. Also, special thanks to Paul Solomon, Ph.D. and T. Grandon Gill, D.B.A. for their counsel and support as incredible dissertation committee members. Special recognition to the DBA program director T. Grandon Gill for developing this phenomenal program entailing the bridging of academia to the business world, and assistant director Mathew Mullarkey, Ph.D., for facilitating our academic journey. This honor bestowed upon us as DBA graduates could not have happened without the vision and leadership of our Dean, Moez Limayem, Ph.D. Thank You. I cannot forget my DBA classmates who were my inspiration the past three years. I am equally and deeply indebted to my good friend Robert Appleyard, “economist extraordinaire”, whose insights, advice, and keen sense of analysis, guided my thought process and allowed me to produce a richer dissertation, thank you. Finally, to all of the participants who invested their valuable time, and provided me with a wealth of information which made my research worthy, I am eternally grateful. TABLE OF CONTENTS Lists of Tables .............................................................................................................. iii Lists of Figures ............................................................................................................. iv Abstract ....................................................................................................................... ..v Chapter One: Navigating the Turbulent Economic Waters .......................................... 1 Executive Summary ................................................................................................ 1 The US Housing Market ......................................................................................... 2 Housing Bubbles ..................................................................................................... 7 The Great Recession of 2007 ................................................................................ 10 Literature Review .................................................................................................. 15 Literature Summary ............................................................................................... 15 Literature Analysis ................................................................................................ 19 Government Monetary and Housing Policies ....................................................... 20 The shadow banking system and the financial engineering of mortgages……….24 Lending Products and Underwriting Standards .................................................... 25 Subprime Market and Lending .............................................................................. 26 Other Contributing Factors .................................................................................... 29 Discussion ............................................................................................................. 30 Effect of Government Monetary and Housing Policies ........................................ 33 Role of Subprime Lending and Borrowers ........................................................... 35 Impact of Adjustable Rate Mortgages ................................................................... 35 Conclusion ............................................................................................................. 36 References ............................................................................................................. 38 Chapter Two: Exploring the Impact of Non-Financial Factors ................................... 43 Abstract ................................................................................................................. 43 Executive Summary .............................................................................................. 43 Introduction ........................................................................................................... 44 Scope of the Study................................................................................................. 49 The Homebuilding Industry .................................................................................. 52 Literature Review .................................................................................................. 56 Methodology ......................................................................................................... 61 Participants’ Selection ........................................................................................... 63 Format of the Questionnaires ................................................................................ 64 The Interviews and Data Collection ...................................................................... 65 Technical Steps ..................................................................................................... 65 Data Analysis and Results ..................................................................................... 66 i Findings ................................................................................................................. 67 Summary of the Qualitative Findings ................................................................... 75 Discussion ............................................................................................................. 80 Conclusion ............................................................................................................. 84 Limitations and Implications for Future Research ................................................ 85 References ............................................................................................................. 86 Chapter Three: Lessons for the Local Homebuilding Industry ................................... 88 Abstract ................................................................................................................. 88 Executive Summary .............................................................................................. 88 Introduction ........................................................................................................... 89 Protocol for the Literature Review ........................................................................ 90 Research Methodology .......................................................................................... 90 The Homebuilding Industry and the Great Recession of 2007 ............................. 91 Recession: Background and Historical Perspective .............................................. 95 Literature Summary ............................................................................................... 98 Operational Efficiencies ...................................................................................... 102 Innovation ............................................................................................................ 105 Marketing……………………………………………………………………….107 Forecasting……………………………………………………………………...108 Discussion ........................................................................................................... 109
Load more

Recommended publications
  • Lessons from the Great American Real Estate Bubble: Florida 1926
    Lessons from the Great American Real Estate Bubble: Florida 1926 NBER Summer Institute July 7-10, 2008 Preliminary Please do not cite. Eugene N. White Rutgers University and NBER Department of Economics New Brunswick, NJ 08901 USA Phone: 732-932-7486 Fax: 732-932-7416 [email protected] could never be another 1929 investors were better informed, the event quaint tale of distantPrior foolishness. Research on market bubbles was a exercise treatment. to the 1987 stock market crash descended on many of recent housing. market bubble’s the collapse of the housingThe market housing brought market about boom a decline and bust in aggregate the m investment weakening of householdIt balance is a forgotten sheets episode, which if discussed, through conflicts of interest that spawnedFlorida. That the housing marketGreat C boom was nationwide policy failed to address the general question of how to manage the Great Depression. Bank rash. The securities m elsewhere in the economy, the collapse of the housing market did not derail the economy;s of the latethe twenties conventional seemed wisdom at was that there however it explains Depression and Housing w It was the one of a one The Forgotten Real Estate Boom of thecharacteristics 1920s is arkets had been reformed and as the first part of the 1925 , with insider lending and it seriously weakened the balance sheets of many householdssupervision and f banks. id a rising tide of foreclosures-1920s has received similar the autonomous drop in investment on the eve of the Great is seen as 7000 unknown. limited -two punch.
    [Show full text]
  • Recession of 1797?
    SAE./No.48/February 2016 Studies in Applied Economics WHAT CAUSED THE RECESSION OF 1797? Nicholas A. Curott and Tyler A. Watts Johns Hopkins Institute for Applied Economics, Global Health, and Study of Business Enterprise What Caused the Recession of 1797? By Nicholas A. Curott and Tyler A. Watts Copyright 2015 by Nicholas A. Curott and Tyler A. Watts About the Series The Studies in Applied Economics series is under the general direction of Prof. Steve H. Hanke, co-director of the Institute for Applied Economics, Global Health, and Study of Business Enterprise ([email protected]). About the Authors Nicholas A. Curott ([email protected]) is Assistant Professor of Economics at Ball State University in Muncie, Indiana. Tyler A. Watts is Professor of Economics at East Texas Baptist University in Marshall, Texas. Abstract This paper presents a monetary explanation for the U.S. recession of 1797. Credit expansion initiated by the Bank of the United States in the early 1790s unleashed a bout of inflation and low real interest rates, which spurred a speculative investment bubble in real estate and capital intensive manufacturing and infrastructure projects. A correction occurred as domestic inflation created a disparity in international prices that led to a reduction in net exports. Specie flowed out of the country, prices began to fall, and real interest rates spiked. In the ensuing credit crunch, businesses reliant upon rolling over short term debt were rendered unsustainable. The general economic downturn, which ensued throughout 1797 and 1798, involved declines in the price level and nominal GDP, the bursting of the real estate bubble, and a cluster of personal bankruptcies and business failures.
    [Show full text]
  • October 19, 1987 – Black Monday, 20 Years Later BACKGROUND
    October 19, 1987 – Black Monday, 20 Years Later BACKGROUND On Oct. 19, 1987, “Black Monday,” the DJIA fell 507.99 (508) points to 1,738.74, a drop of 22.6% or $500 billion dollars of its value-- the largest single-day percentage drop in history. Volume surges to a then record of 604 million shares. Two days later, the DJIA recovered 289 points or 16.6% of its loss. It took two years for the DJIA to fully recover its losses, setting the stage for the longest bull market in U.S. history. Date Close Change Change % 10/19/87 1,738.70 -508.00 -22.6 10/20/87 1,841.00 102.30 5.9 10/21/87 2,027.90 186.90 10.2 Quick Facts on October 11, 1987 • DJIA fell 507.99 points to 1,738.74, a 22.6% drop (DJIA had opened at 2246.74 that day) o Record decline at that time o Friday, Oct. 16, DJIA fell 108 points, completing a 9.5 percent drop for the week o Aug. 1987, DJIA reached 2722.42, an all-time high; up 48% over prior 10 months o Today, DJIA above 14,000 • John Phelan, NYSE Chairman/CEO -- Credited with effective management of the crisis. A 23-year veteran of the trading floor, he became NYSE president in 1980 and chairman and chief executive officer in 1984, serving until 1990 NYSE Statistics (1987, then vs. now) 1987 Today (and current records) ADV - ytd 1987 (thru 10/19): 181.5 mil ADV – 1.76 billion shares (NYSE only) shares 10/19/1987: 604.3 million shares (reference ADV above) 10/20/1987: 608.1* million shares (reference ADV above) Oct.
    [Show full text]
  • Recession-Proof Fundraising Fundraising Workshops for the Nonprofit Professional
    Recession-proof Fundraising fundraising workshops for the nonprofit professional We can’t deny the painful truth around us. Turn on the evening news and you’ll hear forecasts of economic doom and gloom filled with phrases such as economic downturn, soft economy, stimulus, and recession. Forecasts for an end to these hard times range anywhere from months to years, but like the weather, we know things will get better. It takes perseverance, innovative thinking, and a strong belief in your mission to be a successful fundraiser during these hard times. In a down economy, organizations are forced to be leaner and become more efficient, making them better positioned to take advantage of a rebounding economy. However, when faced with a recession, many nonprofits make poor choices that limit their growth, such as scaling back fundraising or becoming pessimistic. Now is a great time to recession-proof your fundraising effort by getting back to the basics, sharpening your message, and diversifying your funding base. The Annie E. Casey Foundation/Casey Family Services, the Community Foundation for Greater New Haven, and Empower New Haven, Inc., are please to offer two fundraising series for nonprofits. fundraising for small organizations with activities. At the very beginning of this session, participants will limited fundraising experience discuss their logic model homework assignment in groups and Participants will be required to attend all three workshops with the entire class. The presentation materials will provide a template for participants to use when creating grant proposals in this series. All workshops in this series are led by Diane for their programs or projects once they return to their offices.
    [Show full text]
  • Bubbles, Manias and Market Failures
    7 February 2019 Bubbles, Manias and Market Failures PROFESSOR D’MARIS COFFMAN transcribed by Mr Imad Uddin Ahmed Thank you all, it’s a great honour to be here. This is actually my second time lecturing in this hall. I was first here about 5 years ago in 2013 when I was talking about something else entirely. I’m thrilled to be back, and I would like to thank Michael Mainelli, who is not here, for in fact convincing me to do this for a second time. Tonight, I’ll talk about bubbles, manias and market failures and particularly about the unintended consequences of regulatory responses to these events. And I think when you begin talking about the subject, it’s almost imperative that you start with Tulipmania which is the paradigmatic early-modern financial crisis. Some of you may recognise this wonderful print from 1637/38 by Peter Nolpe which shows a fool’s cap in which people are playing a gambling game that was played in the inns near the flower markets. It was a kind of auction game, bit of a spread-betting game in which they bid up the price of tulips. And this print shows the devastation that Tulipmania was supposed to have caused to the morals and the economic welfare of the Dutch republic. Now most of when we actually see copies of this print, don’t see the copies from the 1636-37 but rather recycled copies from the 1720s in a much different context. We’ll talk in a moment about that context.
    [Show full text]
  • Budget Director's Message
    Budget Director’s Message fy2016 proposed budget Table of Contents Introduction ������������������������������������������������������������������������������������������������������������������������������������������������������������������������3 FY 2016 Program and Policy Highlights �����������������������������������������������������������������������������������������������������������������5 Health and Human Services �������������������������������������������������������������������������������������������������������������������������������������������������� 5 Public Safety �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 6 Library�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 6 General Government ���������������������������������������������������������������������������������������������������������������������������������������������������������������� 7 Capital Assets ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 7 Planning for the FY 2016 Economy ���������������������������������������������������������������������������������������������������������������������������8 Economic Climate ����������������������������������������������������������������������������������������������������������������������������������������������������������������������
    [Show full text]
  • The Subprime Solution
    The Subprime Solution How Today’s Global Financial Crisis Happened, and What to Do about It by Robert J. Shiller Copyright © 2008 by Robert J. Shiller. Published by Perseus Books LLC 208 pages Focus Take-Aways Leadership & Management • The subprime crisis may be the worst financial catastrophe in the United States Strategy since the Great Depression. Sales & Marketing • This crisis is a consequence of the U.S. real-estate bubble. Finance Human Resources • Hardly anyone recognized this bubble as a bubble when it was happening. IT, Production & Logistics • The subprime crisis eroded social capital and trust. Career Development • Restoring trust in the system and controlling the subprime crisis’ fiscal Small Business consequences will require bailouts, though they are generally undesirable. Economics & Politics • Like the Depression, this crisis provides an opportunity for institutional reforms. Industries Intercultural Management • The U.S. needs a better financial information infrastructure to provide accurate Concepts & Trends information to uninformed consumers and mortgage buyers. • New institutions could give credit to mortgage lenders and provide risk management tools to individual borrowers. • Financial market reforms and better financial technology could improve the U.S. economic system. • Current events call for the effectiveness and generosity Americans have shown in the past, as in the Marshall Plan. Rating (10 is best) Overall Importance Innovation Style 9 9 9 8 To purchase abstracts, personal subscriptions or corporate solutions, visit our Web site at www.getAbstract.com or call us at our U.S. office (1-877-778-6627) or Swiss office (+41-41-367-5151). getAbstract is an Internet-based knowledge rating service and publisher of book abstracts.
    [Show full text]
  • Recession Proof Jobs
    September 2009 WWW.BERGEN.EDU/THETORCH VOLUME - 15 ISSUE - 1 Environment Club... pg 2 The Torch Meadowlands Campus... pg 3 THE STUDENT NEWSPAPER OF BERGEN COMMUNITY COLLEGE Textbook Resolution: What is it? SADAF KHURSID On April 1ST, Bergen resolution that would save even more difficult to burden for students. Some CO-EDITOR Community College held the students some money in attain.” of the recommendations that a public hearing to inform the long run. The Text Book Did you know the were stipulated included the The present economic the students that the tuition Resolution was proposed to average text book now costs following: recession has forced us to will increase by almost the senate to help students a minimum of $100.00? “[To] keep the same face the harsh realities of eight percent for the next cut back on some of the That is approximately three- editions of books for two drastic increases in every semester. This means expenses that they will be fourths the cost of tuition! years, give preference to arena from transportation to that you, the students, will facing. According to SGA, The Text Book low or no cost educational the cost of food. The most be paying more than you “The rising cost of the Resolution was passed April resources over expensive important change that has already are. college textbooks creates an 21st by the faculty senate. commercial text books, occurred and which affects Keeping that in mind, added burden to the tuition The Resolution consists of make professors place every student is the increase Student Government rate which is spiraling out suggestions or alternatives a copy of required and in tuition.
    [Show full text]
  • The Financial Crisis and Its Impact on the Electric Utility Industry
    The Financial Crisis and Its Impact On the Electric Utility Industry Prepared by: Julie Cannell J.M. Cannell, Inc. Prepared for: Edison Electric Institute February 2009 © 2009 by the Edison Electric Institute (EEI). All rights reserved. Published 2009. Printed in the United States of America. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system or method, now known or hereinafter invented or adopted, without the express prior written permission of the Edison Electric Institute. Attribution Notice and Disclaimer This work was prepared by J.M. Cannell, Inc. for the Edison Electric Institute (EEI). When used as a reference, attribution to EEI is requested. EEI, any member of EEI, and any person acting on its behalf (a) does not make any warranty, express or implied, with respect to the accuracy, completeness or usefulness of the information, advice or recommendations contained in this work, and (b) does not assume and expressly disclaims any liability with respect to the use of, or for damages resulting from the use of any information, advice or recommendations contained in this work. The views and opinions expressed in this work do not necessarily reflect those of EEI or any member of EEI. This material and its production, reproduction and distribution by EEI does not imply endorsement of the material. Published by: Edison Electric Institute 701 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2696 Phone: 202-508-5000 Web site: www.eei.org The Financial Crisis and Its Impact on the Electric Utility Industry Julie Cannell Julie Cannell is president of J.M.
    [Show full text]
  • Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling
    NBER WORKING PAPER SERIES FACTS AND CHALLENGES FROM THE GREAT RECESSION FOR FORECASTING AND MACROECONOMIC MODELING Serena Ng Jonathan H. Wright Working Paper 19469 http://www.nber.org/papers/w19469 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 September 2013 We are grateful to Frank Diebold and two anonymous referees for very helpful comments on earlier versions of this paper. Kyle Jurado provided excellent research assistance. The first author acknowledges financial support from the National Science Foundation (SES-0962431). All errors are our sole responsibility. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w19469.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2013 by Serena Ng and Jonathan H. Wright. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling Serena Ng and Jonathan H. Wright NBER Working Paper No. 19469 September 2013 JEL No. C22,C32,E32,E37 ABSTRACT This paper provides a survey of business cycle facts, updated to take account of recent data. Emphasis is given to the Great Recession which was unlike most other post-war recessions in the US in being driven by deleveraging and financial market factors.
    [Show full text]
  • Escaping the Great Recession"
    Escaping the Great Recession Francesco Bianchi Leonardo Melosi Cornell University FRB of Chicago Duke University CEPR and NBER April 2015 Abstract We show that policy uncertainty about how the rising public debt will be stabilized empirically accounts for the lack of de‡ation in the US economy during the zero-lower- bound period. Announcing …scal austerity is detrimental in the short run, but it preserves macroeconomic stability. On the other hand, a recession can be mitigated by abandoning …scal discipline, at the cost of increasing macroeconomic instability. This policy trade-o¤ can be resolved by committing to in‡ating away only the portion of debt accumulated during the recession. JEL Codes: E31, E52, E62, E63, D83 Keywords: Policy uncertainty, zero lower bound, Markov-switching models, shock-speci…c policy rules. We are grateful to Gadi Barlevy, Dario Caldara, Je¤ Campbell, Gauti Eggertsson, Marty Eichenbaum, Martin Ellison, Jesus Fernandez-Villaverde, Jonas Fisher, Alejandro Justiniano, Christian Matthes, Maurice Obstfeld, Giorgio Primiceri, Ricardo Reis, David Romer, Chris Sims, Martin Uribe, Mike Woodford, as well as all seminar participants at the NBER Monetary Economics group, SITE-Stanford University, Northwestern University, NY Fed, Chicago Fed, SED Annual Meeting, Cornell University, University of Wisconsin-Madison, Toulouse School of Economics, University of Michigan, Cleveland Fed, UPF, ECB, ESSIM Tarragona, Goethe University, Bonn University, Bank of England, UC Irvine, and the University of British Columbia for useful comments and suggestions. The views in this paper are solely the responsibility of the authors and should not be interpreted as re‡ecting the views of the Federal Reserve Bank of Chicago or any other person associated with the Federal Reserve System.
    [Show full text]
  • Labour Markets Trends, Financial Globalization and the Current Crisis in Developing Countries
    Economic & Social Affairs DESA Working Paper No. 99 ST/ESA/2010/DWP/99 October 2010 Labour Markets Trends, Financial Globalization and the current crisis in Developing Countries Rolph van der Hoeven Abstract The current wave of globalization has profound labour market effects, accentuated, in many cases, by the current financial and economic crisis. This paper reviews general labour market trends and country examples, arguing that the current globalization process makes labour’s position more precarious, a trend magnified by the current crisis. This is consistent with the policy reactions to the crisis: governments have (rightly) acted as a banker of last resort to avoid the collapse of the financial system, but, despite stimulus plans and monetary easing and some labour market policies, have not really acted as an employer of last resort. JEL Classification: E24 (Employment, Wages and Unemployment), E64 (Incomes Policy), F42 (International Policy Coordination and Finance), J21 (Labour Force and Employment) Keywords: Globalization, Financial Globalization, Employment, Income inequality, Financial Crisis Rolph van der Hoeven is Professor of Employment and Development Economics at the Institute of Social Studies, The Hague. Comments should be addressed by e-mail to the author: [email protected] Contents Introduction ................................................................................................................................. 1 Labour market trends ..................................................................................................................
    [Show full text]