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CoreLogic reports that home prices gained 6.3% in 2015 following a .8% advance during December. Not a bad year all things considered yet prices still remain below their 2006 pre-crash highs.  Of note relative to real estate of late is the resurgence of alternative financing methods and HELOC or Home Equity Loans, the magic house becomes ATM mechanism that featured so prominently in foreclosures following the 2008-2009 financial crisis.  But it is the rebranding of Sub-Prime and Alt-A loans, complete with zero down payment options and their return to the mortgage market that is so remarkable.  Have we really as a society forgotten the harsh lessons learned after the 2008-2009 bust, so soon?  A simple back of envelope calculation using basic math will tell you that you cannot advance an asset price irrespective of buyer income indefinitely.  Creative financing may keep the party going for a while, as it did before, but ultimately the fundamentals will force a return to reality as the payment has to be made, month after month.  If the income isn’t there and or the price declines from a lack of affordability the outcome will be largely identical.  Or to put it bluntly foreclosure and bankruptcy as it’s hard to sell underwater properties and avoid the latter especially when the purchase has been leveraged 10 to 1 or worse.  Incidentally 10-1 leverage was permitted on margin accounts to purchase stocks prior to the Great Depression, something that was cut to 2-1 after the fact as leverage plus debt is a ruinous combination.

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