Of course individual cases vary, but the real estate bubble, in macro terms, was created by a huge number of people buying houses they could not afford, and the sale of those houses in turn drove the market higher yet. That went on and on, fueled by mortgage loans that should never have been made. Lenders went insane, and people, who always want nice stuff, believed them when they were told they could afford it. It is similar to the "creative financing" disaster of the 70s, in spades. I remember just a couple of years ago driving through neighborhoods of new, huge beautiful homes, the sidewalks crawling with little kids. I remarked to my wife that I couldn't understand how so many young couples could afford such nice property. Well, now I know. They couldn't.
When I started buying property, way back in the dark ages, you applied for a loan, and were on pins and needles waiting to find out if it was approved. In the application process, you laid bare your entire life. It was nerve-wracking, but the result was property owners who could meet their obligations, unless there was some really exceptional circumstance. During this bubble, it was apparently the other way around, with lenders desperate to write as many mortgages as possible, based on the assumption of an accelerating upward spiral of values. Borrowers didn't even verify their resources. Crazy.
