Reading the statistics about housing’s collapse, it’s hard to imagine how we all got here, but here we are. While it’s tempting to lay the blame at greedy mortgage brokers, ill-informed home buyers, crooked appraisers, etc. The fact remains, there is enough blame to go around. Seeing the extend of the demand for housing people and companies stepped into the breach to offer new, more exotic home loans, looser qualifying, etc. The “how” of this all came about is now clear to see, the “why” it came about is will be debated endlessly.
We believe that one reason we became over-invested in housing has historical antecedents. What’s interesting about our current malaise about housing, is how much of it can be laid at the feet of the first great housing crisis in America during the great depression. Surprisingly, until that time, most people rented homes. Because of steep down payment requirements, most people simply did not have the cash required to afford a down payment. That meant that those who participated in the market were actually financially capable of participation. If you didn't have enough money saved for a down payment, you simply couldn't buy.
We faced this same scenario as a prelude to the current crisis: people wanted to buy homes, but really, their incomes couldn't afford it. So what did the industry do? Created an entire marketplace based on sub-prime credit levels. Now everyone could afford to play. In a world where housing prices only go up, this is a beautiful thing. But as we learned, housing prices actually fall now and then. And sometimes, when the foundation is poor enough - they collapse.
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