So back to my question - wasn't it the govt support of Fannie/Freddie that took the checks/balances off of the ever-present greed?
-ERD50
It was greed that gripped the populace... the truly great makings of a bubble. I haven't given this enough thought, but something akin to this could be causal.
There's a limited number of houses at all levels of supply (there's a finite number of $50k houses, $150k houses, $500k houses, $5mm houses, etc).
Purchases increase along the lower band. As supply goes down, if demand remains, then price will go up to stabilize demand.
But, now we see that prices are going up, this looks like more of a sure bet. I'm comfortable taking on a slightly higher mortgage, especially since I'm leveraged and more leverage plus increase in price means I make even more.
This ripples up and down the chain. Supply is still limited. I can only build so many houses at a time.
We can assume supply was tight simply because of the percentage increase in home ownership (from 65%-74% or thereabouts). I recall that, at one point, even in Minneapolis... with lots of land to expand and no reason for a bubble, houses would be bid over asking price by 5-10% on the first day of listing at the height of the craze. That promoted a weird mentality of people being convinced that they had to buy.
At some point, we're not even talking about F&F backed paper any more. We're talking about people going for loans for houses they could barely afford that were well over the size of the loans that F&F would buy.
So, it takes greed on a few parts. You need someone that thinks their house will only go up and they should get the biggest house they can afford. You need someone that will offer them an ARM, 40 yr mortgage, whatever. You need underwriters that will go along with it. you need appraisers that will agree that the house is fairly valued.
It's not just greed in an isolated form of capitalist greed, but a weird kind of greed that makes shows like Property Ladder and House Flippers popular.