Reply to Who can afford 800K-1M homes? Genuine Curiosity!

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[quote=Anonymous][quote=Anonymous]One of the things that make me nervous about the DC real estate market is how many people are living in homes that they can afford only because they bought when prices were much lower (in other words, they couldn't afford to pay today's prices).  That works fine as long as you don't have very many people leaving and/or you have a steady stream of new people arriving to buy.  But without that, prices aren't sustainable.  So if the job market in DC starts to slip, prices are going to drop.  I'd be a lot more confident in the market here if everyone currently living here made enough money that even if they had to start over, they could still afford the same house.[/quote]

It's irrelevant that they people who purchased at a certain $ amount in the past can't afford the current (higher) market value of their home.  They can afford the mortgage that they locked in at purchase (based on the purchase price and the fixed interest amount).  That amount the owner pays doesn't change if the house increases in value over time.  In fact, that cushion of equity means that the owner has a lot of flexibility if/when they want to sell.  They might even opt to sell in order to realize that equity and roll it into another home.  Either way, it is irrelevant to whether or not other buyers will be able to afford to by the house at todays market price.  And, as we know by basic laws of supply and demand, the price will fall if buyers can't afford it.  That's normal - not some sort of new phenomena.  You may worry that wages/salaries can't help sustain home prices, but that is a different concern from the one you articulated.[/quote]

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