“Because of the alternative mortgage instruments and the adjustable rates and the option arms, the interest-only mortgages, for most households the affordability has not gone down as rapidly as prices have risen,” says Raphael Bostic, professor of real estate at the University of Southern California.
Affordability also does not take into account the ten trillion dollars in home equity that Americans have sucked out of their homes in the last ten years. “This is a real concern because families have used their homes as piggy banks, as sources of funds to do a host of other things so there's actually an extra burden that is not reflected in the numbers that come out on a monthly basis,” adds Bostic.
As prices continue to fall at the high and the low end, some homeowners will find that the equity they took out is no longer intrinsically in the house. If they don’t have to sell, then they can afford to wait the market out. For others, the price scenario doesn’t add up quite so neatly.