Two thoughts. First, you are not considering the impact of rising unemployment and/or inflation. If you can’t make the payment it doesn’t matter that you got a low rate. These factors will lead to millions of people who will ultimately be forced to leave. It’s only the 2nd inning of the housing meltdown.

Second, having been on the wrong side of the trade in 2007-08, don’t discount the massive psychological effect of being substantially underwater. If you bought in the last 12 months you grossly overpaid. If you are not already underwater chance are you will be soon. Throwing 2000 a month plus utilities and maintenance at a depreciating asset can cause your brain to do funny, and maybe irrational, things.

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I would love to see an analysis on how many homes have been purchased via equity from another property (I.e. HELOC). As someone who has purchased 3 separate properties in the midst of this insanity, the amount of “cash buyers” simply doesn’t make sense. I realize that many well qualified buyers nix the financing contingency in their purchase offer and pitch that as “cash” in order to stay competitive...but I’ve seen first hand that many of these cash offers are sincere and exactly that: cash.

I’m well aware of the average financial strength of those within my cohort, yet my experience in purchasing real estate assets defies reality. Married, 30’s, few kids...nearly 1 year ago today, I went $150,000 over asking on a 900k home in a good school district outside of McKinney TX and lost. Close in 7 days, all the other standard “pick me” crap.

Shocked, I simply added another 50k, for a grand total of 200k over ask, on the next home we made an offer on, which was under contract with us within 6 hours of being listed. I had similar experiences with the other 2 properties I purchased for family members who we wanted to live near us.

I am a super fortunate guy. I own and fly my own jet. I have a lot of money on the bank and scattered over a portfolio some people manage for me. I have a nice business that effectively runs itself. I’m leaving out a ton of detail in my post, but purchasing the aforementioned real estate assets was a full time job for me for several weeks, despite my above average financial security.

My only point in mentioning all of this is that something doesn’t add up. Where is all this money coming from? Blaming the fed may explain why icee’s and gas cost more money, since every middle class family got a nice little stimulus check, but it can’t explain how millions of Americans suddenly, seemingly overnight, developed a level of financial strength allowing them to compete with the “1%” or whatever other derogatory term we are using to describe moderately successful people these days.

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If you believe real estate values can only go up you have failed to study the past. Real estate will fall in value it has always done so. The only question you need to understand for yourself is can you afford your payment based upon a sustainable income stream. There are only two days that the value matter in real estate ownership, the day you buy and the day you sell the values in between those dates is irrelevant. Where people get messed up is taking out mortgages with payments that they can not afford. They live on credit cards for a bit then roll it into the mortgage if the market has moved up end up with another unaffordable payment. Etc. the music always end on that chair game. When the buyers are all gone when a massive downturn occurs and you overpriced home will revert back to the mean and in someplace we’ll below the mean just like what happened in 2008-2012. Don’t ever think it can’t happen again.

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