There have been a few “how’d it happen?” type posts around. This one (via eschaton) is particularly clear and cogent.

Potential home buyers for the most part don’t really care what the sticker price is on the house; they care about the monthly mortgage payment. In the early days of the house price boom, the “culprit” was simply low long term interest rates. People with good credit were getting cheap 30 year fixed rate mortgages, allowing them to buy a more expensive home for a cheaper monthly payment. As housing prices started to go up, subprime lenders started to jump in and widened the pool of people for whom cheap money, at least temporarily, was available. Uncle Alan Greenspan blessed the use of ARMs, and lenders began offering very low teaser rates that would balloon after a few years. People either didn’t understand what they were getting, other than that promised home, or assumed that they’d be okay because continuing positive housing price trends would always give them a way out. Later, more corrupt lending practices grew, with lenders handing out high rate no doc loans to anyone who asked. And then, of course, there were the flippers, the amateur investors who dove in towards the end of the boom, as always happens in bubbles, further driving up prices.

He adds that since houses are not a liquid asset the bubble is bursting in slo-mo but left out the fact that the reckless lending practices were blessed by Greenspan in order to prop up the “tax cuts work” myth that supply siders are always trying to shove up the public ass.

I have to wonder how many people here in MOT-land owe much more on their houses than they are worth. My guess: many.