patrick.net

Zephyr,

Looks like we pretty much agree on #1 & #3, though I have to wonder how long the GSEs will continue to be a large factor in the easy money game, especially given the ongoing accounting "issues" at Fannie & Freddie. Privately run MBS/CMOs appear to be here to stay, though if they start demanding higher risk premiums (thanks to collapsing bubble), this will curtail lending & mortgage liquidity significantly. As Peter P says, reflexivity in action.

To some extent I see your point in that the capital gains exemption, mtg. interest deduction and 1031 exchange have all been with us for a long time IN SOME FORM. However --and this is critical-- As DinOR pointed out what changed dramatically in the 1990s was that these programs were vastly EXPANDED.

The 1031 process/red tape was greatly simplified in the Omnibus Budget Act of 1990 --opening the door many who were previously afraid to try it. The Taxpayer Relief Act of 1997 of course greatly increased the amount of tax-free capital gains on primary residences, eliminated the one-time only restriction, and later amendments expanded this benefit to second homes as well. I can't help but believe these were significant factors in spurring greater speculation and turn-over in the housing market. Tax-free money is a powerful lure for any investor, and you can't get any of it if you don't cycle product --the faster the better.

No, I don’t have, never had, and never will have, a HUMMER.

Ok, thanks for clearing that up, Linda --your reputation remains untarnished! ;-)
Now, have you ever given anyone a... no, I'd best not go there. :roll: (*cough*) Never mind, carry on.

I can buy a house in cash with the saved and reinvested money in less (or much less) than 30 years in almost all plausible scenarios.

Girgl,

the only problem with this scenario is actually saving the difference for 30 years - but I agree, I've already thought about this a few times myself - so much more relaxing - save for 30 years, then pay cash for the place you were going to buy after you downsized anyway, in the neighbourhood you want to live in, not the one you moved to for the schools 'cause of the kids, who are now grown... The added bonus is that, if you buy this way, there doesn't have to be room for the kids to move back home!

Different Sean,

All of the specific tangible influences such as tax policy can change the realistic normal trend line or neutral value level. If these changes are viewed as permanent, then they permanently shift the fundamental balance level and do not cause (nor reduce) cyclicality. Of course, the timing of such changes certainly can influence the momentum of the market… but these things do not cause bubbles.

Bubbles are caused by exuberance - by the expectation of further price increases even when prices are viewed as too high. Price movement that is supported by fundamentals precedes the exuberance. It sets the stage for the expectation of further price increases. Then people rush to invest on the momentum. Psychology and rumor then pushes the market. Abnormally high demand is thus created and cannot be sustained… and the tide turns.

Girgl and tsusiat,

The problem with that reasoning is future inflation and taxation are both unknowns. "Safe savings" like CDs rarely keep up with inflation.

Current taxation is clearly in favour of home owners. There is no reason to believe that this may change. No practical chance.

Owning is better than renting. But not at any price. Most of us want to be owners at some point. It's just that the financial risk is very high at this point for many.

HARM,

I agree that the $500,000 exclusion is an attractive benefit. But what it lets you do is sell without reinvesting. The prior law allowed unlimited exclusion for anyone - but you had to fully reinvest. So at the margin the tax law change should encourage some incremental exit from the market (reduced demand). However, I really do think the impact was insignificant, because most people probably reinvested anyway, given what the market was doing.

I have argued this with my friends. This was one of the very very few discussions I actively participated before realizing that it is better to shut up than become a hugely unpopular person. (Reposting from previous thread.)

To me, anyone who buys a house with ARM, or I/O is speculating. It is not investing, it is not for “settling down”, it is not for buying a “home”. They are expecting to various degrees

1. Continuous rise in asset prices.
2. Interest rates being lower when the reset happens.
3. Their income being higher than what it is now.

The first 2 are nothing but speculation. The first one is not happening anymore. Second one is already wrong.

The only way to save this bubble is wage inflation. How likely is that to happen ? Even if BB prints money like mad, the resulting inflation may not translate into wage inflation.

I am keeping a watch on wages. That is more important than the rents. Just because rent went up by 10%, a person may not be willing to take on a huge debt. But if salary goes up by 10% or more, it’s a different story.

HARM,

Regarding Fannie and Freddie, they have lost market share to others. The capital markets have an appetite for the mortgage debt and they will seek it even if Fannie and Freddie were to go away.

Before these entities were of consequence the savings banks would sell their loan portfolios to other banks that had more deposits than loan demand. In those days the liquidity for housing was heavily dependant on consumer savings. During recessions this became a sparse source of capital, and lending liquidity would all but disappear. This pounded the faltering housing market down hard. Today the source of mortgage funds is the world financial markets.

it's the 2 things in conjunction, zephyr -- shrewd investors trade on new tax breaks or liberalised credit products, which then causes a bidding war and prices go up. once joe public sees prices going up, a myth starts about cashing in on the boom, with the whole resultant circus. spruikers and gurus then go round charging $5,000 to learn 'the secrets of the wealthy' or just selling investment properties by touting the new tax breaks etc -- the very nature of market forces ensures that there's a wildfire effect. unfortunately, there's no bounds on human greed in capitalist societies to act as a restraining influence...

but i think there's no question that historically low interest rates post 9/11 definitely started people borrowing more, along with the other effects -- what we are seeing is price readjustments following interest rates -- which makes a 'normal trendline' an almost impossible concept, as interest rates can jump around from 2% to 18% within the space of a few years, totally changing the pricing and investment equation. it will probably roughly track CPI or wage increases as the best indicator over the long run. layered on this is the 7-year 'Juglar business cycle' of capital jumping from property -> shares -> cash etc. (I personally happen to think all this is virtually immoral when it comes to a reasonable social settlement.)

To me, anyone who buys a house with ARM, or I/O is speculating.

however, ARMs are the norm in Oz, mainly because they are 1 or 2% cheaper than fixed rate, so mortgagors try to save significant money in the here and now simply by going for the cheaper option. as long as rates don't go back to the 18% of the 80s, they think it's a reasonable arrangement. a recent study suggested that it was costlier to use fixed rate over a long period under analysis due to low stable rates. the only speculation is trusting that rates won't skyrocket, they're in no way necessarily underwater and praying for capital appreciation in this scenario, or the other 2 items you suggest...

BTW, I saw a report that RE lenders have recently loosened their lending standards. Seems like rather perverse timing.

BTW, I saw a report that RE lenders have recently loosened their lending standards. Seems like rather perverse timing.

they loosened them well and truly a few years ago -- the Prudential Regulatory Authority (APRA) eventually had words with them tho, and tightened them again -- altho it may have reverted. there are now record foreclosures in the last year here (posted on my blogspot www.housingaffordability.blogspot.com) as well as the general financial calamity as posted above of higher fuel prices, increasing interest rates, changing industrial relations laws, etc.

but isn't it odd how untighten and unloosen mean the same thing in english when the roots are opposite???

BTW, I saw a report that RE lenders have recently loosened their lending standards. Seems like rather perverse timing.

Good Lord! I guess business for sub-prime has dropped off to the point where they're not generating enough business churning condos for illegals and dead transients. What's next - marketing NAAVLPs to 4th graders?

If you have a link for this, please post it --thanks.

I think I saw it in the WSJ a few days ago.

On delinquencies, I read that subprime is starting to show noticable trouble already, while the higher quality loans are still doing fine with very low levels of trouble. However, one must keep in mind that delinqencies and foreclosures are lagging effects.

The California state tax burden is not really that high, 22nd overall:

http://www.ppic.org/content/pubs/jtf/JTF_TaxBurdenJTF.pdf

I don't know where everyone gets the idea that it is, it is one of those urban myths that keeps circulating around.

Different Sean,

Agree with your points on market effects. It is iffy to pick a normal or balance value. This requires assumptions of course. I believe one must make a base assumption about where the prevailing level of interest rates will be. From this (combined with many other variables) you can make a base line or normal trend line for prices, and compare actual to expected.

Good Lord! I guess business for sub-prime has dropped off to the point where they’re not generating enough business churning condos for illegals and dead transients.

that's a good point... the whole sorry RE business sector adjusts to new heights of loan size, volume of loans, etc, so when it slows down as the boom runs out of steam (still higher per transaction commissions than 10 years ago), they panic and liberalise again -- they can't cope with the idea of activity reverting to earlier sensible levels...

In the spirit of the topic, a passage from Edwin Lefebvre attributed to Jesse Livermore, the early 20th century stock operator, after losing big on cotton:

When we got to Philadelphia I drove to a broker's office. I
saw that there was the very dickens to pay in the cotton market.
Prices had broken badly and there was a small-sized panic on. I
didn't wait to get to New York. I called up my brokers on the
long distance and I covered my shorts. As soon as I got my
reports and found that I had practically made up my previous
loss, I motored on to New York without having to stop en route
to see any more quotations.

I bore the cotton market no grudge for taking a million
dollars out of me and I did not hate myself for making a mistake
of that calibre any more than I felt proud for covering in
Philadelphia and making up my loss. My trading mind concerns
itself with trading problems and I think I am justified in
asserting that I made up my first loss because I had the
experience and the memory.

I particularly like the line: My years of experience in trading told
me that the line of least resistance had changed from up to
down.

How many real estate operators are going to dispassionately play their real estate hunches, and recognize that the path of least resistance has changed from up to down before it is too late?

Re the effect of the IRC121 $250K/$500 2yr exclusion:

Zephyr said:

"I agree ... attractive benefit. But what it lets you do is sell without reinvesting. The prior law allowed unlimited exclusion for anyone - but you had to fully reinvest."

I thought the prior law only allowed deferral of gain above the lifetime cap?

I agree that some folks took their excluded gain and spent it, pumping up the economony or other asset bubbles. So that could reduces some price pressure on the costliest houses (say above $1M). But some here sense that IRC 121 added fuel to the flipping fire, pumping a lot of hot air back into the lower and more moderately priced properties. IE the flippers can take their gain, spend some and split the rest up to buy one or more cheaper houses to start all over again. When the recyling of gains back into speculation is coupled with dramatically relaxed mortgage standards (even Bernanke now sees it) you have the recipe for a speculative bubble.

Corretion: Nothing is moderately priced today.

This web site tracks listing inventories in various metro areas. Don't miss the amazing graph of current and historical inventory in Sacramento.

http://bubbletracking.blogspot.com/

Supply and demand, baby.

The sheer fact that you didn't have to "reinvest" BECAME the attraction! Back when we did things more correctly (the old tax code wasn't perfect but look at the alternative) you could make a huge profit selling your home but alas, unless you were over 55 you HAD to reinvest! So there wasn't a lot of incentive to move up, out or otherwise (until you reached 55!) For the most part folks stayed put, built equity and made improvements based on needs (not curb appeal or the "wow" factor). This lead to the "housing ATM" you've heard so much about. Hell you don't even have to sell the damn place to access the tax free money. Just wait by the phone for about half an hour and a mortgage broker will call to make delivery! This is what lead to fluffed up appraisals, pumped up income on mortgage applications and a consumer driven economy on steroids.

There was a time when couples took about 30+ years to cycle through their "starter" home, an intermediate home, their dream home and after 55 their "empty nest" home/vacation or 2nd home. Thanks to the 500K exemption we've now compressed this chronolgy to about 5 years. After you've made about 24 mortgage payments you should have enough "equity" to take it out and custom build your 2nd home. You have arrived! You can now buy, sell and trade vacation homes! If you're creative (and a little gutsy) you can show this as a "primary residence" and bilk tax free money from that too! What's the ruling here? Any two of the last five years? Conservative estimates show that in 2005 35%+ of home sales were "2nd homes".

If the 500K exemption is such a "non-factor" why did the President's bi-partisan panel look at it so hard last fall (along w/ the deductibility of ridiculous amounts of mortgage interest) and why is the RE lobby marching on Washington to make sure it stays in place?

Coincidence?

Makes sense to me.

Garth Farkley,

You know HARM and others have very courteously brought it to my attention that I have beaten this thing like a "rented mule" and....... well..... they're right. The reason I took the pains to document the "home buying chronolgy of couples" is to exhibit just how distorted the exemption has made things. In addition to creating at least two (possibly three) generations with the belief that retirement savings are for suckers (leaving them seriously under funded to face the golden years) the exemption has de-stabilized our neighborhoods, fostered a false sense of security and left a nation with more debt than the government bond market. I say give the people what they want! Uh, are we still so sure?

SFWoman,

Alright! Now that you have "cracked the cover" on the NIMBY portion of our discussion did I mention I have a "rented mule" that you could take a turn beating? Go on! I'll hold the bridle.

O.K, that's quite enough.

FAB,

Huh?

The whole ball of wax that corrolates with this thread, which has been the foundation of frusturation amoungst all of us, and one that we don't like to admit is that as products of a generation that for the most part could work and procure a fairly decent middle income exsistence, we naturally expect a procession of ethical opportunity.
We expect to be rewarded for our hard work, our climb up the professional ladder, our careful spending and saving habits, and the other seemingly innocent advancements into the future. I'd say that most of us are at a similiar stage in our lives. We're married, or serious with someone we love, have been in our chosen industry for some time now, and now the next logical step is into a starter home of some sort. We've signed off on all our checklists. All the I's have been dotted and T's been crossed. Yet we've struck a wall. Ok- so we've saved up reasonable sums of money, have studied the market, and have the education needed to survive in the modern world... yet we can't afford that sort of mediocre house in Oakland? What in the hell happened?
The answers that we're continually seeking here is : Can what appears to be unethical practice, and what we percieve to be unfair be something that the "bad guys" get away with? Will our hard work be rewarded, just as it was for our parents, who haven't done anything diffrent than we have? Will those who took huge risks, made a bet by taking out an IO loan combined with an ARM really in the end be the ones who can sit back and laugh about how miserable they were, only to be able to pay for it thanks to a combination of government changes in taxation and "forgiveness" laws?
Sometimes I do some basic analysis of my own. I walk to work downtown every single day. On my way, I pass through the business district. A sea of 70k bimmers and men wearing $3,000 suits are the majority of those that populate this area, and from 9-5 every weekday.
We acknowledge that indeed the business district is comprised mostly of wealthy white men. We do so because that's just the way it is. Does anyone question whether this is ethical? Not really. Is it? Well, if you apply the same ethics that apply to this topic, then yes it is unethical.
So that brings up the final question that haunts many of us yet we're afraid to admit it: Is the BA turning into a place that will eventually be comprised mostly with upper income, primarily white, well-to-do people? The answer is that the high cost of housing is just a step in that direction. There has been a dramatic shift in class structure here. We view people who buy what we in Tennesee would call a "small home" as well off. The fact of the matter is that you could compare a kid with 3 pennies on a table and sliding one into the rest, where the last penny bounces off the opposite end. The middle class is now no longer the middle class. We are now the working class, the working class are now the working poor, and the wealthy are simply more prevelant in number. The uncomfortable truth could very well be that the BA is turning into an elitest location.
I went to this silly "boycott housing" site the other day. The sheer numbers of people who made good money, didn't own, owned, or rented were sayin the same thing: " ya, it's a great place to live... but I'll move if things don't get better." John mentioned the prevelance of mass immigration to "Pentobia". meaning the fleshing out of areas besides NY, CA, ect. We've discussed this countless times, but in my opinion, if people here are looking for what may never return to the BA, then "penturbia" is where it is heading.

Zephyr Says:

> BTW, I saw a report that RE lenders have recently
> loosened their lending standards. Seems like rather
> perverse timing.

Most "RE Lenders" are actually "loan originators" who make tons of fee income originating loans (that they know have a high probability of defaulting) before they make tons more money selling the debt to stupid bond buyers (so they don't give a shit if every loan they originated goes bad)...

FAB,

I'm totally sure I don't know where you're taking this thing. However; if we're going to be silly (and it is Friday) then in distinguishing between correlation and causation we could then imply that the smoldering couches, torn down street lamps and empty plastic cups littered up and down fraternity row are not necessarily "correlated" nor "caused" by the free kegs of beer we dropped off the night before?

I mean, how could there possibly be a more direct and clear connection between the cap gains exemption and the housing bubble? Now that you and Zephyr have somehow put the burden of proof back into my court I'll simply ask you:

If cap gains (STCG or LTCG) were due on every transaction on every penny above your cost basis would everybody be so eager to sell, move and "lock in their gains"? If the ever abundant "serial refinancer" were told that every dime he/she took out in the form of a HELOC was going to be added to their AGI would they be chomping at the bit? I (for one) don't think so. You guys can pooh pooh it all you like but if it's it really a "non-factor" either of you mind if we change it back? I mean, since it doesn't really matter anyway?

SFwoman,
The one thing that always strikes me as being really off is the lack of children in the BA. What I mean by this is that while these days there seems to be a verifiable sea of newborns, it seems that there are no children between the ages of 5-15 or so.Either that or the prevelance of older, 45-50-something parents with young children. I think most younger people that have kids these days simply pack up and leave.As a parent, haven't you noticed this as well?I gauge this as a way of telling how many middle income families are actually still here. I'll retract my statement about a majority of white populace, but while I agree with the Brazil model, as has been mentioned a number of times by me and others here, I think that the model could very well be heavy on the upper class side, and very low on the middle class side, with an almost equal lower income class, and a massive sea of young, transient, unsettled single professionals. This transient population could potentially be a bad thing for business that relies on long-established experience.

FAB,

The 500K exemption and recent run up has caused lots of people to think of their primary residences as investments, rather than a conservative savings account + durable good. Thus, lots of people are buying the biggest house possible and buying/selling as often as possible, to cash in on their "investment". So during the upswing of the bubble, it causes more speculative buying and higher bid prices.

I definitely agree with you about the impact of the 500K exemption on the way down. This will dramatically reduce the cost of selling for long time owners, something that a future buyer should keep in mind and take advantage of.

Astrid,
Yup. It still strikes me as very strange the number of people I've met who readily ackowledge that they're planning on selling, buying something else as soon as they can. Most recently, A client remodled their kitchen. They spent over 50k on it, and subsequently had just bought the place less than a year ago. Selling it was already an option for them. Why remodel a kitchen when you aren't there to enjoy it?

astrid,

I couldn't think of any "schmizing" that ryhmes with downsizing. On that I agree, would you prefer the 20% a year appreciation on our 500K "investment" or would you prefer the 20% appreciation on our 1 mil. "investment home?" Let's see?

There is so much evidence (anecdotal and otherwise) in nearly every facet of American life today. Frankly, I didn't really anticipate there would be much to "debate" here at all. I thought we would be treating it more like an "intervention" where the "problem/abuse" has already been identified and we are now plotting a path to recovery! Folks, it's a problem. Let's fix it.

DinOR Says:

> I mean, how could there possibly be a more direct
> and clear connection between the cap gains exemption
> and the housing bubble?

I have not met (or heard of) a single person who is buying a house in the Bay Area just so they can sit on it for two years and cash out under the 1997 cap gains law change (where will they live after they put the $250K or $500K in the bank)?

> Now that you and Zephyr have somehow put the burden of
> proof back into my court I’ll simply ask you:
> If cap gains (STCG or LTCG) were due on every transaction
> on every penny above your cost basis would everybody be
> so eager to sell, move and “lock in their gains”?

Let’s not forget that before 1997 very few people paid cap gains on home sales. How many American’s move to a smaller home before they are 55 (most of the people I know in their 50 have High School age kids)? I know a lot of realtors and in the last few years under the new laws “MORE” people are actually paying cap gains on home sales than they did prior to 1997 (it is still very few people)…

> If the ever abundant “serial refinancer” were told that every
> dime he/she took out in the form of a HELOC was going to
> be added to their AGI would they be chomping at the bit?

Where did this come from? Equity loan proceeds have never been added to AGI. Let’s stick to why a change in the tax laws that does not change things for most people has caused the bubble…

> You guys can pooh pooh it all you like but if it’s it really a
> “non-factor” either of you mind if we change it back?
> I mean, since it doesn’t really matter anyway?

I wouldn’t care if the law was changed back and I don’t think many other people who bought bubble homes would care if we go back to the old laws. The young couples I know that are buying $1mm TIC flats in the Marina and Cow Hollow are not planning to cash in any time soon, but plan to sell at a profit and roll all the equity in to a single family home (usually outside the city if their kids will not be the third generation to go to Town/Cathedral or Burke/Convent)…

astrid Says:

> FAB, The 500K exemption and recent run up has caused
> lots of people to think of their primary residences as
> investments, rather than a conservative savings account
> + durable good.

People thought of their homes as “investments” long before 1997…

> Thus, lots of people are buying the biggest house possible
> and buying/selling as often as possible, to cash in on their
> “investment”.

Do you really know anyone that is doing this?

Let’s say I bought a condo in the Marina for $500K with my wife (if I was married) in 1997 and we sold for $1mm in 2002 and put the $500K profit in the bank what are the odds I could talk my wife in to moving to the Sunset (since we couldn’t afford another condo in the Marina without the $500K) and buying another condo so we could wait for it to double in value like the last one.

My main points on this “change in the cap gains laws did not cause the bubble” debate is that:

1. Prior to 1997 almost no one paid capital gains on a home sale or pulls out any cash.
2. After 1997 almost no one pays capital gains on a home sale or pulls out any cash.

P.S. Post 1997, just like Pre 1997 anyone could refinance and pull out equity tax free…

Asrtid, Dinor, FAB & Zephyr:

Astrid said:

So during the upswing of the bubble, it causes more speculative buying and higher bid prices. I ... agree about ... the impact of the 500K exemption on the way down. This will dramatically reduce the cost of selling for long time owners, something that a future buyer should keep in mind and take advantage of.

This makes sense too, which argues for a harder landing. Wasn't Zephyr's original point that IRC121 creates no fundamental support for a higher plateau. He didn't say that the 2yr exclusion is irrelevant to the direction and velocity of prices. In this view the exclusion makes the roller coaster ride steeper both up and back down.

But, at near the bottom, or near a false bottom, some speculators will come back for tax free money again. It's an extraordinary lure -- an attractive nuisance if you will, for the unsophisticated "investor" who either has cash or can borrow the loose money spread around by "loan originators" who don't actually lend the money.

FAB

Do you believe that the 2yr exclusion has not aggravated flipper-mania?

FAB,

"People thought of their homes as “investments” long before 1997…"

However, not nearly as many as now and back then, only for the very long haul via paying down the mortgage. Most of my parents' friends bought only as big of a home as they needed, and a few lived in apartments even though they could afford homes. In fact, when my parents were planning to sell their home, they were only expecting a 20-30% increase in value (they got 125% increase), even with the awareness of prices going up all over D.C.

"> Thus, lots of people are buying the biggest house possible
> and buying/selling as often as possible, to cash in on their
> “investment”.

Do you really know anyone that is doing this?"

Yes! I know quite a few of people in their 20s and early 30s who bought prematurely (buying with boyfriend/girlfriend, buying with downpayment from parents, taking ARMs, paying more than 1/3 of their gross salary for the houses). These people are not traditional house buyers, they are also buying more house than they can comfortably buy. And almost every one of them expect to sell the house in 2 to 5 years, when their life situation changes, for a substantial profit after basis and transaction costs. This thinking is also creeping into my parents' generation. Most of their friends still think houses can only go up and feel they need to lock into a house immediately

It is precisely the high end that's most affected by the 500K/2 yr exemption. Most shitboxes do not go up by 500K in 2 years, the higher end stuff can --- even when experiencing smaller percentage increases. The tax exemption on the 500K is free money, and it makes sense to lock in that tax savings and reset the clock, which will cause market volatility. So even if you continue to buy and sell the same property, you get to lock in appreciation tax free all along the way. (I know this calculation gets tricky in CA with prop 13)

Furthermore, in your house selling and repurchase scenario, perhaps you can persuade your wife to sell the house and then dump it onto two 500K properties. Then get tax free appreciation on the primary residence and LTCG taxed appreciation on the vacation property.

"My main points on this “change in the cap gains laws did not cause the bubble” debate is that:

1. Prior to 1997 almost no one paid capital gains on a home sale or pulls out any cash.
2. After 1997 almost no one pays capital gains on a home sale or pulls out any cash.

P.S. Post 1997, just like Pre 1997 anyone could refinance and pull out equity tax free… "

Excellent points. I primarily see greater volatility (people seeking to lock-in the tax exemption) and more entrants who seek this tax benefit earlier than prior to 1997. More people are also selling their much appreciated primary residences to finance the purchase of 2 or more houses, to maximize the potential appreciation.

Unlike Zephyr, I still think that a permanent 500K primary residence exemption will raise prices, though I'm clueless as to how much. It operates just like any other subsidy to distort the market and shift long time prices upwards.

However, other restrictions can bottleneck the market to prevent the buy side (for example, via strict lending that forces everyone to buy less house than they'd want otherwise), which may result in greater supply on the supply side, as FAB mentioned.

Wow, some great posts this AM on the "capital gains contributed to the bubble" debate. I think both sides have some good points. On Zephyr & FAB's side, I can see their point about tax-free money from SELLING, not necessarily REINVESTING not being able to support higher prices (long-term) and even providing an incentive for some to sell early.

However.... and this is the big "but", eliminating the "once-in-a-lifetime/over-55" restrictions has enormously increased the incentive to CHURN and SPECULATE in residential real estate to an extent that would have been unthinkable for average people before the law was passed.

Lets' not forget an important sea change (dare I say "paradigm shift") in Joe McHomedebtor's psychology prior to 1997 vs. now, as DinOR, astrid & Garth have pointed out:

Pre-1997: housing = mainly a place to live and sort of long-term "forced savings/retirement account".

Today: housing = the new NASDAQ, Vegas & Amway all rolled into one. A rapidly (perpetually) appreciating and frequently traded volatile commodity to be flipped, traded, leveraged and borrowed against as often as possible, with no nasty tax consequences.

I think herein lies the heart of our differing opinions. I see the new laws incentivizing volatility and helping to turn housing into a new vehicle for reckless speculation.