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May 25, 2005


Hi Half Sigma
The part of the article that bothers me is that higher home prices are giving people the sense that they are wealthy. Some people are dipping into their home equity to finance consumption. This is the road to bankrupcy.

Home prices cannot continue to climb on average. Some areas may continue to see housing price rises if those areas become more desirable. But people are already borrowing to the max to buy these homes as it is, and lenders will not lend more money to potential homebuyers than their income justifies. I think home prices will flatten or go down a bit next year.

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