I think the equity thing is certainly true in my area (LA-SFV) but in all honesty I think more people spent more of it, than reinvested all of it into a house.

A lot put back it into their house with upgrades, remodels, and ever complete rebuilds, but I really think more people bought new cars, second homes, went on vacations, bought motorhomes, jet skis, or yellow H2s.

You have to understand the mindset most people had, and were brainwashed to believe by every now defunct subprime lender of the past 5 years. In general they truly believed their 300% appreciation was normal. As if they deserved it. Not only that, many believed it would continue.

It sounds so asinine to think now, but people actually thought that. A lof of people probably could have afforded their homes had they used all their equity, because homes were still higher than they could have otherwise afforded.

Enter exotic mortgages.

Now people can buy that house, and take out $150,000 to start a business, buy a car, remodel, eat a very very very expensive dinner, and STILL have a lower payment.

If you look at the mindset that is only just starting to change, the equity bubble made people feel rich, so they lived like it. Only problem was they have to pay that money back.