The absolute certainty that housing prices will appreciate justifies any level of leverage or income commitment on the part of buyers. Why even pay down your principal at all when you can build up principal by home price appreciation? Alan Greenspan won’t let the housing market fall.
Besides, according to a Fed study, there is no sign of a housing bubble. And why should the bank care about credit quality when mortgages are packaged and resold on secondary markets, dominated by the government-sponsored ( maybe) enterprises Fannie & Freddie. The New York Times profiles a Southern California market where:
a planned community in the southern part of Orange County, more than 1,000 people are on a waiting list for the chance to buy one of 27 unbuilt three-bedroom houses at prices starting in “the low $400,000’s.” In San Bernardino County, where some commute as long as two hours a day to jobs in Los Angeles and elsewhere, a five-bedroom tract house that sold for $378,000 a year ago is on the market again for $609,000.
