What continually surprises me is that people take on mortgages of $500,000 – $1,000,000 without the ability to pay. The amount of gambling on appreciation was just astounding.
If buyers were truly buying homes they could afford, to live in, then prices may come down, but default rates would not change.
To me, default rates is a sign of speculation running rampant, not just on the part of non-resident investors but on the part of full-time residents.
It takes about 2 years to personalize a house the way you want it and to fully settle in. The resale activity that we see clearly obviate arguments that people buy because they want they can afford their own personal castles. In a normal market of inflation appreciation, selling within 5 years would cause a loss (due to transaction and home improvement costs).
In reviewing sales data, I saw plenty of houses that sold in 1996 for below their purchase price in 1989. We can expect the same, or worse this time around.
