Okay, we're in agreement. Except on the mortgage point. Yes, people have always had mortgages, but now they have this new thing -- interest only mortgages -- which are patently insane. Basically, you buy the house/condo/co-op and pay only the interest on the mortgage.
What this had to is people buying properties they simply cannot afford.
When prices crash -- and they will -- the banks are gonna take a beating. And when banks take a beating, they like to spread the pain around as much as possible.
In the 15th through the 18th century in Europe,land speculation ( and this includes housing ) was quite the wild ride. You think interest only mortgages are something new? THINK AGAIN!
The Chicago real estate boom of 1870-71 and '73, it was said that in 1871 every other man and every fourth woman has an investment in house lots. By 1873 ot had grown into one gigantic BUBBLE and burst.
Then,there was the Chicago co-op boom of the late 1920s.Some developers built with no cash at all and when the market crashed,they went belly up,leaving the apartment owners to also face not only bankruptcy,but having to rent ( they turned many of the buildings into rental ) what they supposedly had owned. Some builders were even worse frauds and built/sold/and took the money and ran...leaving the banks and supposed owners holding the bag. But there were still wealthy people, some of whom banded together and managed to keep their building co-op,or rebought their apartments and rented out the rest. Most of these building age co-op or condos to this very day;with those that were rental, made into condos decades ago.
Manhattan real estate is in the fix it's in ( prices )due to city government laws and regulations and rent control. Then there's also the fact that there's just so much land available and the laws of supply and demand.