There are many who predicted the inevitable crash of the US housing market, but others were shocked when a market that had plenty of go over the past few years began it's downward slide.

One of the main causes of the current tumble was the crumbling of the subprime market. Because of many subprime loans, companies were quickly faced with foreclosure. Even if companies weren't facing foreclosure, they saw the loss of billions of dollars.

Reports regarding the subprime market crash have been splashed all over the news. While these events have affected most property owners, most are still uncertain how it all happened.

A few years ago many property buyers found subprime mortgages as a great advantage. Low credit ratings, eager buyers and institutions willing to give out subprime loans combined to allow investors to buy properties rapidly. On subprime loans, the underwriting guidelines are are easier to meet than on more convential mortgages. These gave people with poor credit a chance to obtain a loan. Lenders were able to charge higher rates of interest to these buyers with less than good credit. Additionally, lenders had the belief that if they had to foreclose on the home due to non-payment, they would be able to sell the property at a profit.

Money to fund these loans came from a wide variety of sources. Extremely low interest rates made it possible for lenders to borrow money themselves and then loan it back out to subprime home buyers. Sometimes, the money was received through more complicated channels. One of these ways is by governments borrowing money from central banks. This is particularly common in the United States.

At this point in time the housing market was stable. The real estate market was seeing a high that had not been seen in quite a few years. In addition to many homeowners taking an massive debt they couldn't afford, there is another problem. The forecasts for the real estate market were completely unrealistic. Future growth was predicted at double digits for an infinite number of years, it seemed.

2005 and 2006 saw the last of the housing boom. During that time and prior, lenders were throwing loans at anyone with a pulse. These subprime loans were tremendous cash cows for lenders. Problems began to occur when interest rates began to rise from previous record lows. Historically, rising interest rates have had a negative effect on the housing market. Low rates(cheap money) help produce demand and high rates tend to cause prices to fall. Up to mid-2006 the construction market could not keep up with increasing demand. At mid-year the demand began to fall. It was at this point the number of defaults and foreclosures began to mount.

Very soon many mortgage lenders began to find it hard to access money from their previous sources of funding. As a result, most would be buyers found it harder to obtain loans as cheap money to the lenders was harder to find. In addition, investors became wary of the increasing risk and made their underwriting guidelines stricter. Homeowners with adjustable rate mortgages began to find it hard to meet their monthly mortgage payments in the face of increasing interest rates. When they tried to refinance with the stricter underwriting guidelines, they found it impossible to obtain a fixed rate mortgage. As a result, defaults continued to rise fueling a huge mass of foreclosures.

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