re: Why were house prices going up like crazy during the housing bubble?

quote:

---

Why didn't the stupid high prices deter people from buying more houses?

---

People don't buy houses all cash. They use leverage. As long as you can "afford" the monthly payment on bigger and bigger mortgages, the price will go up as those folks bid up the price.

quote:

---

Why didn't the system correct itself? 

---

It did. The market crashed remember?

quote:

---

Did the bubble burst because people couldn't pay the mortgage or did they just run out of suckers to buy more houses? 

---

Both. Going back to the top. For some, their loans were teaser rates that adjusted up. What was once a mortgage they could pay became one they could not.

A domino effect occurs. Those mortgages fail, which causes money to suck out of the economy leading to job loss, causing more mortgages to fail and so on.