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.

Just a few years ago subprime mortgages were a great advantage to many property buyers. Buyers who were interested in taking advantage of the hot real estate market but who lacked good credit histories were able to take advantage of subprime mortgages in order to obtain loans. The underwriting guidelines for these loans were generally more lax than traditional mortgages. This allowed even buyers with poor credit to obtain a loan. In exchange for making a loan to buyer with less than stellar credit, lenders were able to charge a higher rate of interest. In addition, so the theory went, lenders relied on the belief that they would be able to foreclose on property and sell it for a profit in the event the borrower defaulted on the loan.

The money which funded these loans came from a variety of sources. Low interest rates made it possible in many instances for lenders to actually borrow money and then loan out those funds to home buyers. In other cases, the money was obtained from more complicated sources. As you may or may not be aware, it is not uncommon for governments to borrow money from central banks. This practice is particularly common in the United States.

At the time the housing market was stable. In fact, the housing market was experiencing a high that had not been seen in quite some time. Beyond the fact that many homebuyers were taking on massive amounts of debt there also existed another problem. Due to the health of the real estate market at the time, in many cases there were expectations regarding future growth that in hindsight now appear to have been unrealistic.

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.