So, driving up demand for loans that should never have been made is not a good thing, especially when it all hits the fan so to speak.Of course they drove up demand. Why else would we securitize loans made by banks? Banking without securitization became unprofitable in the mid 1980's.
Lets look at the CPI (base year 1983/84). I think in most places the peak house prices were in mid 06. Lets start at year 2002 since this is when the trend for home prices really began steepening and the bubble first started to take shape.
CPI Jan. 2002:177.1
CPI jun. 2006::202.9
((202.9 -177.1)/177.1)x100 = 14.568/4 = 3.642
So inflation average inflation was 3.62% per year.
The nominal interest rate for a 30 year home in 2002 was around 7%. In jun 2006 it was around 6.5%.
So the real interest rate in 2002 was 3.38% and in mid 2006 it was 2.88%. Real interest rates declined. This suggests that an the supply of loanable funds was increasing. This seems strange considering the US national and personal savings rates were not really at very high levels. So I would suggest that large capital inflows (as a result of our large current account defecit) resulted in this increase of loanable funds. The interest rate dropped because of a shift in the supply curve, more loans were made at lower interest rates. This caused a shift in the demand for houses to right and an increase in house prices. Thats my theory for the housing bubble. Subprime of course played a role, fannie and freddie were involved, but they were all part of a much bigger picture. This in my opinion is why we saw housing bubbles arise in a large part of the rest of the developed world as well.