> what if you paid too much and your mortgage debt is also
> too much, so that your home equity becomes negative?
Having negative equity, in and of itself, isn't a terrible thing. It might make you feel bad, but it's not, in and of itself, going to a) force a sale or b) wreck you financially.
I agree: Bubble or no, if you can't pay your mortgage, you're in trouble. But I reckon that if you can't pay your mortgage, even if you can sell your house, you're still in a bad place. Something else has gone wrong.
Look at it this way, if you have the perfect storm:
1) You've stretched to buy a house 2) Interest rates rise so you can't make payments 3) Housing prices crash
... you're already in big trouble with 1 & 2. Without 3, sure, you could maybe sell the house and get out. But for people in the 1 & 2 scenario, what's the chance that they got in too late? And what's the chance that their "only" problem is housing? What if they also have credit cards, and the $50k they clear on the house doesn't cover that? Where do we assign the blame for the disaster then?
Don't forget: if you got in even last year, you might not be negatively affected when (if) "the music stops". Also don't forget: interest rates have been rising for well over a year ...
Getting back on point: I think the group of 1 & 2 out of the group of total home buyers is small and likely to be troublesome whether or not their a crash. I think the group in 1 that are in trouble is smaller than a lot of people think; in fact, I think many people stretch to buy houses and have done so forever: big deal. Doug thinks that's irresponsible, but many people do it and come out of it just fine for many reasons.
/jordan