“He rents, and has a half million dollars in cash ready for a down payment. If he buys he’ll end up with a mortgage the same size. So, if prices fall 20% in the next year, he’ll lose 40% of his equity – $200K wiped out.”

In a housing crash, or even a moderate correction, the many who have more than their entire net-worth in housing will be devastated by the leverage working against them. This story is of a wise man attempting to avoid that fate. -vreaa

This from Garth Turner at his blog greaterfool.ca 27 Feb 2010 -

“On the way from the Vancouver airport I stopped to have coffee with a guy who lives nearby. He rents, and has a half million dollars in cash ready for a down payment. But, he knows if he buys he’ll also end up with a mortgage the same size. So, given the magic of leverage, if prices fall 20% in the next year, he’ll lose 40% of his equity – two hundred large wiped out.”

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