There has been a great deal of discussion after the 2008 financial crisis that has attempted to explain the causes behind the housing or real estate bubble.
There are two main reasons cited for housing bubble formation. First reason gives credence to the fact that the Federal Reserve kept the interest rates too low, thereby discouraging savings and artificially stimulating consumption and investments in housing. This lead to a housing gold rush and a lot of families purchased mortgages beyond their needs. The consumers either purchased a house bigger than their long term needs by securing attractive interest rates, or went on to buy and sell houses in quick succession as a betting process to make a quick profit during the expanding bubble phase.
The second reason argues that lending standards were dropped to such a low level that very poor safeguards were built to make sure the potential consumers had sufficient savings, a secure job, their income level was commensurate with the price of house they were attempting to purchase and that the lending institution had sufficient oversight to make sure there are in built mechanisms which will ensure its solvency.
The first reason has flaws since if the lending standards were high and included a thorough credit and employment check for potential buyers and if the buyers had large pool of savings, strong job security, high annual income to housing price ratio, then low interest rates would not lead to a swift popping of the bubble, though there might be a higher than average inflation in housing market.
The second reason related to lax lending standards sounds more plausible, since large numbers of houses sold to buyers who have no means to pay for a 10, 20 or 30 year mortgage might lead to a much deeper crisis once the bubble unravels.