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Not completely but I think this sort of thing could happen to almost any sought after commodity depending on how the companies loaning the money handle it. In this case we are talking about housing and mortgages. It makes sense to me that house prices and mortgages must be in line with the average house buyers' income and ability to make payments. This seems to have worked fairly well with conventional 10-20% down mortgages with payments about 25-30% of income.

As I understand it mortgage companies began offering zero down, subprime, ARMs, etc.. which allowed buyers to pay more than before and therefore sellers to ask higher prices. These unusual mortgages were bundled up and sold to investors as a safe high yield investment. This worked as long as house prices continued to rise and people could refinance before the payments reset to more than they could afford.

House buyers, house sellers and investors were doing just fine until prices started to fall. Then people who were unable to pay the higher reset mortgages were unable to refinance into a fixed rate affordable loan and began to default. As more people defaulted prices fell even more causing many more to default as the house prices fell below what they owed.

The investors holding these mortgages began to see their return diminished because of the number of defaults. This is where I get lost in this whole mess in trying to understand why the investors holding these mortgages can't just accept a lower return on their investment and be done with it. I don't quite understand how these holders of bad mortgages were able to leverage them to the point where they started to go belly up and cause a financial crisis.