For many years to come economists and historians will comb through the ashes of the financial crises that created the Great Recession and offer various explanations as to its cause. It is self-evident and also commonsensical that the real estate price bubble was really a debt bubble. Without the flood of nonrecourse, interest-only, super-high-leveraged lending, the price levels could never have been achieved in the first place. But what caused the “race to the bottom” by lenders? What caused originators to offer loans with extremely low, often negative, debt-service coverage ratios? What caused lenders to issue loans at values approaching the rosiest-of-rosy appraised value of the properties? What caused underwriters to bless even the most starry-eyed projections of rent growth and continued cap rate compression upon disposition?

Explaining the Housing Bubble, a newly published research study by Dr. Susan Wachter, the Richard B. Worley Professor at the Wharton School of B