One thing Id like to add; I think most of the people here underestimate peoples willingness to take risk. Look at the bubble, people were willing to take on huge amounts of risk, cause they thought it was a sure thing.
Now, they are willing to take on huge amounts of risk because prices are so “low”.
Soon they will be willing to take on lots of risk because they know someone who has made a killing.
Piggs as a whole are a risk adverse group. The idea of buying outside of solid historical fundamentals is blasphmy to piggs. For most people it is a much more surreal experience to buy a house. They want it, they like it, they are gonna do it. All else be damned.
And if you want to know how it is possible for them to do this, here are two ideas.
1) you are most likley sitting on 4-8 months of living expenses. This liquidity could easly be used to buy things or be put to work ‘investing’ in houses. You dont use it, they do.
2) You are most likley saving for retirment. I max out my roth, put 10% into my 401k (more than maxing out my employeer 401k matching contribution), and put more into private mutual fund accounts. I view this as necessary, long before buying a house is necessary. I suspect many of you feel the same way. But many people feel that owning a house is necessary long before any of those things are. So we get todays baby boomers who have inadaquate savings but huge networths. Who says todays homebuyers are any different?
