Any history on the inflation and collapse in the housing industry will necessarily leave out lots of essential aspects. The housing bubble had been setup inside the regulatory agencies within the 1980s and 1990s, but capital had not however gone into these sectors at such high levels throughout these decades. Inside the late 1990s, the dotcom bubble was all of the rage, as well as "emerging markets," like Southeast Asia, and Russia and former Soviet Union nations.

Also, partly as a result of the collapse of the Savings & Loan market, and the resulting wave of foreclosures from the fallout, actual estate was a steadily-appreciating, but not inflated, market. Investments were going elsewhere and returns were better in other industry sectors than could be had on actual estate or mortgages, two seemingly somewhat boring markets.

But then, around 1997, the markets in Southeast Asia and other developing nations became super-inflated, with several of them pegging their currencies to the US dollar. Speculators could then inflate the markets, driving capital into them and inflating stock values, and then create a flight out in the currency, taking their profits. Quite a few of these countries saw their currencies collapse relative to the dollar as capital fled. As a result, they were forced to impoverish themselves and take loans from the International Monetary Fund.

The same currency destruction happened most notably in Russia in 1998, where the government actually defaulted on its debt, which was quite unexpected. The most powerful nation within the USSR that competed with the United States for decades through the Cold War defaulting on its bond payments was a surprise for numerous investors. A large hedge fund at the time, Long-Term Capital Management, had bet heavily in favor in the Russian bond market, and was in danger of collapse. The Fed and other large banks stepped in to make sure this did not happen, thereby setting the precedent of bailing out hedge funds.

In 2000-2001, the dotcom bubble burst, as investors realized internet companies could not make money without business plans. Lots of of them folded, and the market place began to sink. It sank even further because of the 9/11 attacks on the Pentagon and New York City. Consequently, the large energy-trading company Enron faced collapse as a result of its aggressive accounting fraud. But Enron had engaged in the somewhat novel idea of selling off its debt to other investors, a plot the largest banks inside the country had helped the company put together.

After the collapse with the dotcoms and the disclosure of Enron's accounting shenanigans, two things happened to work together to create the housing bubble. Without both, the bubble would not have inflated so much, most likely.

First of all, the banks and mortgage companies realized what a great idea Enron had in selling off its debt. The banks could originate mortgages and package them up and sell off the rights to collect the payments. The profits they got from selling mortgages would help them originate new mortgages, and the scam would continue forever, or at least as long as the genuine estate market was increasing in value. Because they did not have to worry about collecting the payments themselves, these origination companies did not have to worry about borrowers being financially able to pay their debts.

Second, because the Federal Reserve lowered interest rates to below 1%, huge amounts of capital flowed into the US marketplace, and anyone who could successful operate a pen could sign for a mortgage. Interest rates were so low that lending guidelines became nonexistent. If the homeowners defaulted, it did not matter within the least, since the bank could just re-sell the house on the open industry and make a profit.

This was the environment until early 2007 or so, when investors started to sober up and realize that maybe giving loans to deadbeats was not such a great idea, because if the marketplace declined, there would be a lot of foreclosures. Banks started tightening up lending guidelines and the Fed was busy raising interest rates to "cool off" the artificially "heated up" housing market.
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