Serious question for those who know more about the housing market than I do. It seems to me that decreasing home values was the most important cause of the subprime mortgage crisis. Cause is probably a bad word though - it's probably more like a "necessary condition." Had home values continued to appreciate in value, borrowers in a bad mortgage (say, an ARM whose fixed-term had expired) could have simply refinanced using the equity gained. Or, if their credit had worsened, they still could have sold the house without assuming outrageous debt (because they would have had the extra equity to cover it). As it turned out, expecting home values to continue to appreciate was a systematic error - a bad assumption made by both sides. As it turned out, home values went down. When borrowers saw their interest rates adjust upward, their monthly payments shot up as well. But because home values went down, most of these borrowers had negative equity in their home, leaving them essentially trapped in their situation. My question would be - why did home values fall? It would seem to me that the falling value of the dollar would have a net positive effect on home values (since they are a domestic good). Were previous home values artificially high? Were they a result of market speculation? We've all heard the old adage that "a home is a great investment" and that most homes double in value every 10 years. Did making subprime mortgages available flood the market with prospective buyers, driving short-term prices up? Resident economists, let me know your thoughts.