how did the housing market get so inflated, and is it different from what happened in 2008?
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2008 was primarily an issue of giving mortgages to people that had no business getting them. They were giving mortgages to people with horrible credit scores, people with super low down payments, etc.
These mortgages were then repackaged and sold as groups of mortgages. The idea was that if you put thousands of mortgages together, it’s highly unlikely they’d *all* fail, and that the ones that succeeded would pay off the failures. This general concept makes sense; the more mortgages in a group, the safer the group is to buy. This is called a mortgage backed security.
These mortgages were mostly fine as long as the housing market kept going up. People could sell their houses and cover the entire mortgage in an emergency because the house was going up in value so fast.
This became an issue when the housing market slowed down. All of a sudden, you had people making 60k a year that couldn’t even come close to covering their mortgage. When these started failing, the mortgage backed securities described above started to crater in value. Unfortunately, banks and 401k providers were holding a LOT of these. When banks start failing, businesses can’t get loans and people lose their savings. This spiraled out of control pretty quickly.
2022 is a different time. We put into place regulations about what sorts of mortgages we can give out, so the failure risk is a lot lower. We also put into place regulations that are designed to prevent banks from purchasing risky assets in the large quantities they did in 2008.
2022 inflation is partially driven by pandemic stimulus money. It’s also partially driven by remote work, which means less people need to live in the city. A housing market crash is possible because of this, but it (in theory) shouldn’t cause a major financial crisis due to the regulations mentioned above.
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