How did falling house prices affect the housing crisis?

Question

How did falling house prices affect the housing crisis?

Answer 1

Lower demand was a result of the credit crunch, and lower demand for existing homes means the pool of pricing goes lower, all else equal, until a buyer is enticed to enter the market (believing values have stopped, or are about to stop falling) and pay incrementally higher mortgage rates to facilitate the purchase of a markedly lower priced home.

Answer 2

Let's say an investment bank buys a mortgage with a house valued at 450,000 dollars.  Lets say today due to the mortgage crisis the house is now valued at 300,000 dollars...the bank either has to refinance the home or else the borrower will walk.  If the bank does forclose on the house...then the bank won't get the money that they originally expected to get for it.  Causing the bank to make writedowns.

Somebody else can probably explain it better.

Answer 3

What housing crisis?  This is the best housing market in twenty years.  My kid just bought a house for about 2/3 of what it would have gone for in the overpriced market of two years ago.