How did the housing crisis happen?

Our neighborhood housing boom and bust story
The house next door to us and the one behind it were built by a speculator shortly before the housing boom peaked. They were sold below market value at the time. The one in the back was sold to a middle-aged woman from the coast. She and her husband have another home. They are immigrants, and he cannot read. He drives a truck for a party company. She sells cosmetics part time from home. These are the kinds of people who could aspire to own two homes during the housing boom. She wants to build a small home for her mother on the property, as well.

The house next to us, about 500 square feet larger than ours on a huge lot, was also sold to immigrants, an unmarried couple in their early twenties. The woman was definitely here illegally, did not speak any English and very sporadically worked in the fields. The man was on workers compensation disability from working in the fields and may have done a little double-dipping: working and getting disability at the same time. They may have also had family help, but still. They could not possibly have gone through the kind of scrutiny we did for our home loan not too many years before. That example of irresponsible lending is only a small part of the picture of how the housing boom developed. It is only a small part of the explanation for the misery caused by the housing bust.

The house next to us is now in foreclosure. The one across the street, a much smaller home sold to more responsible young people (from the coast) is now for sale. They could not afford a home where they lived, but wanted to invest in a home for the future. They paid a higher relative price for the little house than the more irresponsible couple next door paid for their big one. They are also Latino, but native-born and therefore apparently not considered to be eligible for special concessions in home loan applications. They bought the little house just after the larger ones next to us were sold. It has been empty for much of the time they have owned it. Even if they can sell it, they will lose a lot of money.

The national story
There are a lot of losers in this crisis. The ones who have acted most irresponsibly will often get the most help in recovering. This will encourage irresponsibility in the future. ACORN, under its new name, is reportedly campaigning again to make it easier for poor people without good credit to get loans. The government is harassing banks which did not make irresponsible loans to people with poor credit. Our government could learn something from the Canadians here. Canadian banks were more conservative during the "boom" period (like the American banks now under renewed pressure to lend to people with poor credit). There was no banking crisis in Canada. We're setting ourselves up for another crisis here, it seems.

Thomas Sowell discusses how the housing boom and then the bust developed on Uncommon Knowledge.. "Now on Twitter".

Side Note: I tried becoming a Twitter follower of Uncommon Knowledge at National Review to see what was there. Not for me. Too many tweets. Better to scroll through the list of topics at the link above (also added to the sidebar under "New Media"). The Corner at National Review is a little like an exclusive Twitter group whose posts everyone can read. But the Corner crew can post reasonably long, substantive statements. Sometimes you have to scroll back to see what they're talking about when they address each other, sort of like on Twitter. That's close enough to Twitter for me, for an established website. The title of the latest post at The Corner is up over on the sidebar. under "New Topics". But back to the housing crisis.

At the links below, Thomas Sowell discusses some aspects of the crisis which most people miss, and puts the things they think they already understand in perspective. Click on the full screen icon at the lower right after clicking the start button in the center of the screen for best video quality:

Part 1: Economics of the housing boom
Part 2: Politics of the housing boom
Part 3: Origins and unique features of the housing bust
UPDATE:
Part 4: Pitfalls of New Deal Thinking
Part 5: Economic proposals of the Obama adminstration