In his column, Floyd Norris points to a data that the bubble was actually in credit, not housing. Namely:
“During the great housing bubble boom, it was the least expensive homes whose prices went up the most. And now it is those homes that are suffering the most.
“That is where the most creative lending was,” said David Blitzer, the chairman of the index committee at Standard & Poor’s, arguing that the lax lending standards played a significant role in the inflation of prices.
The abdication of lending standards during the 2002-07 period had three significant factors in terms of impacting the housing market:
1. The impact of the credit bubble was to allow millions of marginal buyers to enter the housing market. These were borrowers low to middle income borrowers, who under normal circumstances, would not qualify for a mortgage.
2. The homes they purchased were in the bottom quartile (and often bottom tenth) of prices.
3. The credit bubble caused a massive dislocation — to prices, sales volume, even rental vacancies.