Crash and Burn

I've been watching this housing crisis unfold, listening to Public Radio and the BBC. It breaks my brain that these kinds of shenanigans have been able (and allowed!) to go on for as long as they have. It used to be that a perspective home buyer put 20% down--they were required too. These days, 5% down is not only possible, but common, and it was even feasible to put no money down.
Let me repeat that.
It has been possible for a person to put no money down on a home loan for a $270,000 home purchase.
Lets do some math, ok? Assuming this is a standard 30 year mortgage, at 6.75% interest, this individual will pay 18,500 dollars in interest, if they keep to the payment schedule. The median household income in the US is about $48,000 a year. This means that this person's home is worth 6 times as much as they make in a year. In 1967, the median income was $37,000. The average home price was $20,100 (sources here, and here). Adjusted for inflation, those come to $227,500 and $123,000, respectively. The price of the home was 54% of the yearly income.
So, lets go over this again. The price of the house has skyrocketed 45% in adjusted value, and the average pay a person gets have plunged by 474%.

What?

Am I the only one who sees a problem here? Never mind the fact that people are woefully underpaid anymore, but when buying a home is 600% of your combined salary--thats two earners, most times--its nearly impossible to buy a home with a 20% down payment (that would be $54,000, for those keeping track). Now, in a normal market, with responsible lenders, this would lead to a decrease in the number of loans being granted, which would cause one or both of two things: a drop in the prices of houses to match what people can actually and responsibly spend, or a jump in salaries as employees got more and more annoyed at their inability to purchase a home.
As we can see, this hasn't happened. Instead, there has been a steady decrease in the amount required to make a downpayment, as well as a decrease in due diligence on the part of lenders, in checking the income of the buyer and only providing a loan they have a good chance of repaying. I have heard of single mothers making $27,000 a year being given loans for $400,000 houses. That is fifteen times what she makes in a year. Who on earth thought that this woman would be able to pay this loan?
Whats worse is that the ability to get these loans disguises just how much the average household income has declined, even since 1968. Talk about not getting by in America. You aren't doing nearly as well as your parents or even grandparents were, and are likely doing alot more work for it--and while your pay hasn't gone up, costs have. The artificially low prices of Asian goods leads to a false sense of cost--and that isn't going to last forever, especially as the Chinese economy becomes a real force in the world.
What's the bottom line? Alot of people who want to make money have made it easy for Americans to get deeply in debt buying houses they cannot afford but assuaging the feeling of money-tightness by providing underpriced consumer products which they can afford--and if they can't they can buy it with more credit.
I can't wait for the credit card crash.

Dammit Universe.