Gandalf, you are quite right that overleveraging combined with a looming deep recession will interact to worsen the price collapse.
In past bubbles, going back centuries, it was a mass hysteria combined with credit innovations and “gearing”–what we would call leverage–that combined to run up prices of tulips, stocks, or land, etc.
What made this housing bubble to so overextend itself beyond normal realities of price/rent and price/income ratios was the new, higher leverage possibilities inherent in 5% down, then 3% down, then no down financing. For a while, there was less $ outlay to buy a starter house than to come up with 1 months rent + security deposit. The temptation was too great for many lower income folks, and the eventual collapse became inevitable.
Here is where this over-leveraging at the low end may be relevant to the divergence we are seeing among property price categories. Could it be that the lower leverage in the upper price categories will protect them, especially when combined with the greater income inequality trends we’ve seen in the past few decades? If so, that would make for the richer neighborhoods not falling as far as the others.
