Posted by Keen Brothers on Saturday, September 13, 2008 at 3:56:56 PM By Keen Brothers / September 13, 2008 Comment
One of the driving mechanisms of real estate values is the little known concept of "Buying Power". In real estate, buying power simply refers to the amount, or quality, of home you can purchase with your monthly payment dollars.
The reason we saw the real estate bubble occur (and it's subsequent collapse) had everything to do with the increased buying power of the consumer. The expansion of the credit market into the subprime arena (aka "credit challenged") - folks who might not have otherwise been able to get financing for a home were able to enter the market as first time buyers. This, combined with historically low interest rates, predatory "teaser" rates and cartoonish "1 year interest only" loans allowed buyers to stretch their dollars even higher up the buying power ladder.
Fast forward five years to October 2008 and that's all changed.