Reply #32: There are two reasons for the runaway prices

[cosmicone]

One is obviously supply and demand.

The second is Greenspan kept the interest rates low artificially to cover up Chimpanomics' blunders. Then the banks got creative and offered negatively amortized 1% mortgages coupled with double-decker mortgages (80% first, 15% second) so people could buy with as little as 5% down.

So a million dollar house needs a down payment of only $50,000 and has a total monthly payment of about $2300 for first and $1100 for second = $3400 a month. This brings the million dollar home within reach of someone making say $85,000 a year.

People being optimists, they don't think what will happen when the interest rates go up and the initial low rate for 3 years ends.

This same phenomenon made people refinance and spend the extra cash which has kept chimpanomics going.

Sadly, when the bubble bursts, it will burst very very hard. Very few are alive who remember the 30's but a worse scenario is not impossible. Unfortunately, a democratic president elected in 2008 will be blamed for it and the freepers will have fond memories of how good it was during the chimp-reign.