We have witnessed the greatest destruction of 'so called wealth'.
Take a look at South Minneapolis. It's filled with 1,100 sq/ft homes. Many built around 1920 and 1945. Not particularly well designed, on small lots, terrible garages, accessible by an alley that is a horror in the winter.
Most of these homes cost $3,000 to $5,000 to build. They did not appreciate that much until the 1970's. Then all of a sudden - between the economic boom and the two income earner (which meant you both literally had to work the rest of your waking hours doing laundry, cooking, shoping, etc, just to be prepared to go back to 'work')
I remember clearly: we bought a home in 1975 for $35,000 - the home originally sold for $10,000 in 1960. Thus started the mindset of "your home will keep increasing in value - forever"
How to keep the home increasing in price for forever? Well it was the advent of the 30 yr mortage. The bank earns a tremendous amount of intrest, and most likely you will move in 7 yrs. In essence you're renting the house - since you never really own the asset.
Then when housing continued to rise - they invented the ARM and lowered to down payment amount to a few percent.
To get even more intrest income banks convinced people to 'tap into' their phantom home equity. Why not put that money to work! Thus the 2nd mortgage.
Then when they exhausted the ARM came balloon loans and intrest only for the first 'x' years mortgage.
The last was the $0 down, intrest only loan (for the first two years). Since the prices of homes were rising so fast you could buy a $200,000 home, and have it 'appreciate' 10% a year, so after two years the asset value would be $220,000 - thus the owner had 10% equity!
This is when the sh1t hit the fan.
They ran out of ways to creatively finance a home, and keep the home values appreciating. There was a realization that there was not sufficient household income to keep paying more and more for a home.
These loans were packaged and sold in blocks of 100. There were a ticking time bomb. As long as the payments were made, everything was OK. But when the balloon came do, or they owner had to pay the full PITI there was a default. This is when the bank realized they had purchased way overvalued assets. There was no equity in many of the loans. As a matter of fact - there was a loss.
Near my home (in 2003), some of those crappy 1,100 sq/ft homes were selling for $225,000. Completely outdated, no closet space, bad floor plans (no floor plan), ill designed - compared to a modern condo or apartment. But yet the lemmings kept buying.
We are now seeing the home pricing returning to somewhat what it was like pre 1960.