In the FYI, the blogger makes a point:

The large majority of people in trouble were more than happy to get bigger loans because… well, they got bigger houses for it!

That may be true, but it’s not the whole story.

In what is known as “confirmation bias”, our brain has a tendency to see data that confirm our prejudices more vividly than data that contradict them. Between November 1998 and September 2006, home prices in the 10 largest metro areas rose exponentially (literally: R-square of 0.9924).

Eight years of exponential growth

10-City S&P/Case-Shiller Home Price Index: eight years of exponential growth

This eight-year trend confirmed and reinforced, week after week, the false premise of future guaranteed growth. In that context, it wasn’t just reasonable to believe your newly bought house would be a good investment: it was both emotionally satisfactory and deceptively realistic.

Directly (through home equity loans) or indirectly (investing 401ks in real-estate mutual funds), we all benefitted from the bubble, a classic case of herd effect.

That even includes those who, now, righteously proclaim “I told you so”.

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