Anyone who has ever borrowed money to buy a car knows the initial excitement. They take delivery and feel they could drive forever. It’s exhilarating, almost intoxicating. But in our drunken desire for possessions it is easy to forget the debt hangover that follows.
And so too with home-buying. In the excitement of getting what people want, it’s hard to see any danger ahead. This is especially true if – as is happening at the moment – the people who make money when someone buy, the real estate agents, are urging them to buy, patting them on the back and saying "You’ll be right." As any salesperson knows, it is easy to sell someone something they want. Everyone wants a nice home and every real estate agent wants to sell homes. And so, when the Banks issues a warning to homebuyers to be careful about over committing themselves, the real estate industry is quick to issue its own statements that all is well and that things have never been better. Out come all the old lines about it being the best time to buy because interest rates have never been lower. Yes, and prices have never been higher. Ten years ago, when interest rates were more than twice what they are today, most home prices were less than half what they are today.