traingang

If a person borrows $100k and buys a $100k house, they will have zero equity. If house prices double, they have an asset worth $200k, a loan of $100k, leaving them $100k in equity. This approach to finance is so common in the US that a 7% dip in housing prices is seem as apocalyptic. You will have people walking away from mortgages, foreclosures, a contraction in the money supply since people will not be able to borrow as much against their assets, and banks will fail from the depreciating homes on their balance sheets and/or aggregate demand will fall. And people who are doing well and very well are mostly just people that were allowed to borrow a lot of money at favorable interest rates.

Remember the joke about how the person who voted for the leopards eating people’s faces party was shocked when the leopards at THEIR face?

If there’s one thing boomers are good at, it’s pushing their luck. They go in with the assumption that THEIR property value will rise and not anyone else’s. Lo and behold everyone’s housing values are high so they probably would be no better off if property values stayed low in terms of net profit.