How did the mortgage collapse actually happen?

I am only 15 years old, but the way I understand it is that there was spike in house prices due to increasing demand for houses, and the demand made the prices go up making people want to have them as investments. And when the prices got so high the investors were unable to sell their houses and not able to pay their mortgages and had forclosure.





Anyways this is how I understand it but I want a clearer picture because I dont think I understand it right. Could someone who knows more about this tell me.How did the mortgage collapse actually happen?
you're actually pretty close.


what you're missing in the rise in the cost of food, gasoline, and nearly everything else.


that made it hard for families to cover all their expenses.





add to that, many mortgages had the interest rate fixed for a few years, but after that, it could rise.


the idea was that house prices would rise forever, and if you couldn't afford it at some point, you could sell the house and make a lot of money.


with higher family expenses, and an increase in mortgage interest, people couldn't afford them any more, but since this happened to lots of folks, house prices didn't rise, and nobody wanted to buy the house.





mortgage lenders got paid by selling a mortgage, regardless of whether the buyer could afford it or not.


didn't make any difference to them whether or not the buyer was really able to make the payments, after the first one.





wall street saw all this easy money floating around -- maybe a batch of 1,000 mortgages, that were making 5% this year, but would increase to 7% in a couple of years, and bought them, giving the banks who sold them a bunch of money.





everyone thought they would be rich.


and didn't think about the house of cards that would bring the whole mess down.


10 years ago, it was the .com industry, and the nasdaq.


30 years ago, it was gold.





interesting what greed does to people.How did the mortgage collapse actually happen?
Purely and simply, Browns inability to deal with what needn't have become a crisis. If stamp duty had been lifted to a realistic standing, then the housing market would have still been buoyant. Like so many things this government could of averted, they choose to sit on their hands instead.
You are right, actually.





I can try to explain this in a parable. Baseball players get paid a lot of money, right? Let's say they make on average 5 million dollar per year.





Now, let's say for some reason, people stop going to baseball games in mass droves. For example, parent's can't afford to take their kids to game anymore because they need money for food, clothes, etc.





So, this sets off a chain reaction. General managers of the baseball teams then have to pay their players less becuase they have less revenue. So, because people stopped going to the games, the playes now only make $300,000 per year instead of 2 million.





The houses are the baseball players. it's supply and demand.





I collected baseball cards when I was a kid. I'm 29 now. I remember getting 3 Mark McGwire rookie cards in a pack of baseball cards in 1987. I looked them up in my baseball price guide and it said they worth $5 apiece. Amazed, I went to my friends to show them my newfound wealth. To my disappointment, each of my friends also had 3 Mark McGwire rookie cards.





My point is, just because someone said my card was worth $3, doesn't mean it is. There has to be someone out there willing to buy it for $3. If there is too much of something, no one is going to want to buy it. That's why rare things are worth more money.
The answer to your question is really the collective opinion of many people who think they know the answer. I think you are right up to a point that speculators that wanted to ';flip'; houses for a quick profit were part of the problem because their plans did not involve actually paying for the property over a long period of time but simply reselling it quickly and thus they really did not really care too much about the price they were paying. Add in the buyers that wanted to buy with little money down that thought they could refinance a few years later and use their built up equity from price appreciation as a down payment to get a cheaper mortgage that was more affordable than the one they had agreed to that was shortly going to reset to a higher rate and much higher payments. These two groups of people normally would not be buying real estate. Add them to the group that would normally be buying and the scene is set for strong price increases that can not be sustained.


Also add to the mix the lenders that were greedy and kept promoting easier mortgage terms so more people had the illusion that could afford to buy the now over priced real estate and you have the makings of a bubble. It formed and then it burst. You now see the results.