You can get a loan for against the equity in your current home. So if you borrow $100,000 against your house, that’s a 10% down payment for a $1,000,000 dollar property, or 10 $100,000 dollar properties. So now you’ve got someone worth $30,000 a year in net income, with a $1,000,000 loan. I don’t think it’s that common though.
Yeah, but there’s a qualification process. One of the things that the loaning bank looks for is income, presumably?
Hmmm… now that I think of it, yeah, I was offered a couple of no-documentation loans, but at ever-so-slightly higher interest rates. So at least now I can conceive of aquiring a $500,000+ loan, but not without committing fraud and lying about my income.
One thing I haven’t seen mentioned is that half the country is not having a housing price boom.
Most of the old northeastern rust belt and many of the midwestern and plains states have housing at prices that are incredibly cheap compared to the prices commanded in the sun belt and west coast.
The house I live in could easily be a $500K house in some parts of the country and possibly twice that in the hottest areas. But I doubt I could get $200K for it where I live.
I’m not sure that we can talk - as a society - about a real estate bubble burst when so much of the country’s housing stock is actually undervalued rather than overvalued. Economics is a powerful motivator. If the housing market gets so overpriced in some places that people can no longer afford to purchase there, they’ll start looking for other places to live. And there are plenty of those.
So I don’t foresee a true collapse of the housing market as long as viable alternatives exist.
Xap’s right in that while there’s clearly a bubble going on it’s localized.
I have a four-level home, 4500 sq feet 100 year old yellow-brick (no kidding) victorian mansion I bought for $80K in early 2004. It’s in rural Ohio.
If I plopped that sucker down in DC or Northern VA It’d be more than $1MM easily. Possibly $2MM.
So no bubble here. And if suddenly prices collapsed in San Francisco or Washington, DC I don’t think I’d be adversely affected by it.
You’re right, but I think a lot of these kinds of loans are interest only loans. So as long as the bank gets theirs first, they’re more then happy to give you the loan if you have some value stored somewhere (savings, property, etc…).
I believe there certainly are bubbles in the real estate market and that they will burst (kind of the definition of a bubble-until it bursts it is appreciation…).
But as others have pointed out, real estate is unique in economic markets because it is virtually immobile. Stocks, jewels, tulip bulbs, etc can move. Geography doesn’t effect them (much). So a bubble in those markets can be all-encompassing. In real estate the different markets are independent. When high prices cause a crash or stagnation in N. Virginia or San Francisco, it doesn’t significantly effect prices in Iowa or Detroit.
So there are bubbles in real estate and they will burst. This is of interest only to people who live or would like to live there.
It will effect the nation if it shakes the banking system-which is national and international. That happened back in the 80’s with the “Savings and Loan” crisis.