The Stock Market Crash of the Great Recession: Who’s To Blame?

During 2008, the first full year of the “Great Recession”, the US stock market as measured by the S&P 500 Index went into free-fall, dropping almost 40%. The plunge is generally blamed on the American housing crisis. “Housing” accounts for approximately 25% of the US GDP, reflecting the depth and breadth of the industry for e.g., real estate developers, builders, and architects; brokers, bankers, and lawyers; electricians, plumbers, and roofers; painters and lawn maintenance professionals; and appliance and furniture manufacturers.

Since the dark days of 2008-2010, the S&P has gradually (albeit erratically) recovered and now (early 2012) is just about where it was when the recession began more than four years ago. The same is true of the Dow Jones Industrial Average as well most other indices. What has happened to the housing market in the meantime? The leading measure of American residential housing market is the S&P/Case-Shiller Home Price Index. Since dropping some 30% from mid-2007 to early 2009, the 20-city home price index has not regained any ground, remaining locked at negative 30%.