In an earlier post, How Sub-Prime Lending Created the Housing Bubble, I gave a brief description of the impact of adding a large number of new buyers to the market. However, the title is somewhat misleading because it does not fully explain how the bubble was inflated. In this post, I hope to provide a more detailed explanation of what factors and conditions combined to drive prices so high. The Great Real Estate Bubble was caused by 4 interrelated factors: Separation of origination, servicing, and portfolio holding in the lending industry. Innovation in structured finance and the expansion of the secondary mortgage market. The lowering of lending standards and the growth of subprime lending. Lower FED funds rates as a…[READ MORE]