In my Humble opinion, The "housing" market failed because a whole lot of people bought things that were extremely overpriced with money lent to them by greedy financial folks who made money by selling the risk to someone else who didn't have the expertise to realize that the loans could not be paid by the original purchaser.. Note that the Purchaser is at the start and the end of this problem.. First is that the purchaser should have the sense to understand what is overpriced.. and that same purchaser should have the sense to not buy what he can't afford.. Now.. Off to the war room !!
Actually, it's a bit more complicated. Those people who had nothing, but bought with liars lowns (unverified income on application), had nothing to loose. If they made it through they gained. The government regulators (Barney Frank and the like) created this mess and secondly they allowed for mortgages that readjusted upward to unbearable payments. They and the banks have all the computers, experience and know how to understand and predict the outcome. Then when the unbearable mortgage default crisis came, the government steps in to protect the banks. All they had to do was (1) pass a law that said mortage payments would not be allowed to increase more than modest amounts, and (2) that any loan that had been made, would be refinanced in the amount of the outstanding mortgage if the loan was in good standing and current when interest rates went down. They did neither and pumped money into the banks. The people who got hurt were those who bought homes over a period of years, paid their 20% down, paid on time, but then couldn't sell or refinance when a life event changed things for them...lost of a job, sickness, or any other event where they needed to sell, refinance an existing house, or due to job change, had to get suitable housing elsewhere. They can't sell, they can't buy, and after home is foreclosed, their credit is ruined for years. As to knowing when things are overpriced or when to buy or not buy, it's not so simple as many have stated. My son played the game by the book, needed a home as a result of a job out of state, paid his 20% down, paid his mortgage on time, could not refinance because of being underwater when rates went down (where is the fairness in that?), but continued to pay on time. Now he has gotten the balance down, refinanced, but a new job requires him to sell. His loss will be on the order of $350K.