The mathematics behind today’s “Trapped in a Bubble” story makes perfect sense. Say you decided to buy a $200,000 studio three years ago with 50% down and were selling it now for $300,000 so you could trade up to a one-bedroom. Your $100,000 in equity would now be $200,000. Great, but that one bedroom that was $400,000 when you bought your studio is now $600,000, so despite your increased equity, the mortgage you’ll need a mortgage that’s $100,000 higher than you would have three years ago to carry that one-bedroom ($400,000 instead of $300,000). Oh, and your income has not kept pace with the rise in housing prices. Doh!
Trapped in the Bubble [NY Times]