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Irrational Exuberance.
This was driven by historically low interests rates initially creating greater affordability of bigger loans. This fueled an uptick in housing prices. Combine this with all the money that exited the stock market post 2000 Tech Stock Bubble boom, and you get idiots who believe the real estate agents' hype that housing prices would go up forever. The increase in pricing due to speculation eventually outpriced some people from affording homes (i.e. people whose credit was too poor or income too low for a 30 year mortgage on a $400k+ home), which caused the speculative and insane market to create things like ARMs (adjustable rate mortgages), and stated income loans (i.e. fraudulent "liar loans" where people or the broker mistate the buyer's income). At this point, people werent' even nearly thinking rationally about whether they could repay their loans, and banks were focused so much on competing to get more loans (to meet quarterly projections and such), that they ignored the massive downside risk. Much of it was carried along by brokers and real estate agents that only care about their % commission and don't have to personally face any of the downside risk (i.e. consequences of foreclosures). It was also carried along by bankers whose personal motivations (yearly bonuses) square only with projected profit rather than downside risk.
Basically, everyone went crazy and stupid, and even when people realized it was crazy, they though they could jump on and jump off in time to make money without being caught.
This was driven by historically low interests rates initially creating greater affordability of bigger loans. This fueled an uptick in housing prices. Combine this with all the money that exited the stock market post 2000 Tech Stock Bubble boom, and you get idiots who believe the real estate agents' hype that housing prices would go up forever. The increase in pricing due to speculation eventually outpriced some people from affording homes (i.e. people whose credit was too poor or income too low for a 30 year mortgage on a $400k+ home), which caused the speculative and insane market to create things like ARMs (adjustable rate mortgages), and stated income loans (i.e. fraudulent "liar loans" where people or the broker mistate the buyer's income). At this point, people werent' even nearly thinking rationally about whether they could repay their loans, and banks were focused so much on competing to get more loans (to meet quarterly projections and such), that they ignored the massive downside risk. Much of it was carried along by brokers and real estate agents that only care about their % commission and don't have to personally face any of the downside risk (i.e. consequences of foreclosures). It was also carried along by bankers whose personal motivations (yearly bonuses) square only with projected profit rather than downside risk.
Basically, everyone went crazy and stupid, and even when people realized it was crazy, they though they could jump on and jump off in time to make money without being caught.
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