I realised early on in this recent real estate boom that people were buying homes not on their price, but on their monthly payments. Somehow housing speculators were confusing this with the true value of the real estate, explaining that prices were just catching up to what they should be at (which, to some extent is true, except anyone who noticed interest rates could go no lower should have been able to put two and two together.)

What is happening now as interest rates rise is that a one or two percent difference is taken out gigantic chunks of the home’s value. For those that bought on margin, that hurts big. Think the fed will ease up and pull interest rates back a little bit? Unfortunately the US is very dependant on foreign buyers to hold up the value of the US dollar.. that means Bernanke may not have nearly as much choice as he’d like.