“Securitization of loans allowed lenders to pass off mortgage risk to 3rd parties rather than holding it themselves. They only have to hold the loans long enough to fob them off on the next sucker, so why bother making sure that the borrower is good for the money? And of course they pushed the ARM products so that initial payments were low. This allowed a much larger pool of buyers to enter the market than would normally be possible. Supply held constant, this pushed prices way up.”
Sigh. Where does it all end then? We had stupid lending which led to this housing bubble, people getting greedy and buying beyond their means (no fat government salary here), but inflation, the real one, will keep this house and many others at a high level? So are these prices “real?”
Bubble pricing by definition implies that this pricing was created by truly believing in the Easter Bunny or Santa Claus, you know, “real estate always goes up”, “I can always refinance”, “I can sell and take equity out,” etc., etc. and the banks, those bastions of rationality, actually loaned the money to do this.
