[nkurz]

> We got around this by cutting our budget in half, and using what would have been a 40% downpayment for a 1.5 million dollar house to put 75% down on a $800,000 house.

Wow, that's wonderfully financially responsible. I'm glad you were able to do it, but I'm doubtful many people would be able to pull this off.

> I have no way to prove this, but my impression is that most people with mortgages are buying more house than they can responsibly afford, and they are effectively gambling on not losing their incomes.

I think they are definitely doing this, but I also think most people think assuming constant future income instead of a bug jump counts as being financially responsible.

What I fear is that many people instead are betting that they can make the payments for a couple years by hook or crook (undeclared personal loans and credit card advances) until interest rates fall and then they can refinance. If this projected drop in interest rates occurs, they come out way ahead. Real estate prices soar, and they can afford to stay. If it doesn't, house prices will drop, refinancing will be impossible, and there will be an awful lot of foreclosures of underwater mortgages in a couple years.