[Lzen]

Originally Posted by Halfcan

...The last crash happened mostly because all the First-time buyer money dried up and banks started demanding vast amounts down....

There's more to it than that, but this is what was the root cause:

The stock market crashed in 2008 because too many had people had taken on loans they couldn’t afford. Lenders relaxed their strict lending standards to extend credit to people who were less than qualified. This drove up housing prices to levels that many could not otherwise afford.


Easy credit and raising home prices resulted in a speculative real estate bubble. While the market crashed in 2008, the problem started years earlier.

In the late 90s, the Federal National Mortgage Association, or Fannie Mae as it’s commonly known, began its crusade to make home loans accessible to borrowers with a lower credit score.

Fannie Mae wanted everyone to attain the American dream of homeownership, regardless of credit. Lenders who extended home loans to high-risk borrowers offered mortgages with unconventional terms to reflect the increased likelihood of default.

The relaxed lending standards fueled the housing growth and corresponding rise in home values. People with bad credit and little-to-no savings were offered loans they could not afford. Meanwhile, banks were repackaging these mortgages and selling them to investors on the secondary market.

While housing prices continued to increase, the rising subprime mortgage market thrived. Because house values rose so quickly, the increase in home equity offset the bad debt buildup. If a borrower defaulted, banks could foreclose without taking a loss on the sale.

The resulting seller’s market meant that if homeowners couldn’t afford the payments, they could sell the house and the equity would cover the loss.

A crisis was virtually inevtiable. Once the housing market slowed down in 2007, the housing bubble was ready to burst.

https://www.wealthsimple.com/en-us/l...8-market-crash