You’re not the only one confused, I very often wonder the same thing.

There’s probably a little bit of everything involved. Low rates allow the borrowing, lenders won’t complaint until it gets really sketchy (like now); emotion drives the desire/need, let’s face it we’re vain and greedy people; maybe a few entities with a certain financial oomph (foreign, corporate investors and, uh, some laundering) drive, set benchmark prices and maintain them; Realtors® can’t help themselves from doing the same, sweet commissions, everything is awesome; biases and blind spots rationalize it, “It always goes up!”; Bank of Mom & Dad enable the purchases, don’t want to see kiddos struggle, advance on inheritance etc, plus grand kids; maybe a bit of fraud mixed in there so the bottom that shouldn’t be borrowing/buying in this market now can; and finally a massive lack of useful, meaningful oversight in terms of who owns what and how they came to own it – or even a wink of transparency – allow it all to flourish. They all combine to inflate this one thing way beyond rational and we continue to choose to buy it. I think, collectively, we’re in trouble.

Greater Fool Theory in action.

I’m not sure how small the group is, though.

There is speculation out there that mortgage fraud makes up roughly 20-30% of mortgage originations currently. Couple that with money laundering, investors leveraging out existing properties, or people simply upsizing current properties, and there is your market.