Name: If Nobody Can Afford a Home… Why Isn’t the Market Crashing?
Uploaded: 2025-11-25T18:05:12.000Z
Duration: 12 min 56 s
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If nobody can afford a house, why isn't the market crashing?

Ever since prices skyrocketed in 2020, everybody is waiting for a 2008 style collapse.

But here we are and the market hasn't crashed yet.

If you're looking to buy a house and you're waiting for a housing crash, this might be the most important video that you will ever watch.

When people say that buying a house back in the days was much cheaper, it's true.

Back in 1960s and 70s, the median household income was about 5 to $6,000, while the median house price was $12,015,000.

Homes were only 2 to 3 times the average income.

A ratio that made it realistically possible for most people to save.

For a house, you did not need to take a mortgage.

If you saved for a few years, you could have paid for it outright.

And if you did not want to wait for a few years, you would have taken a mortgage.

With half of the house already paid off, mortgage payments did not hurt.

Even if mortgage rates were extremely high, Even in early 1990s, buying a house was still affordable.

The median household income was $30,000, while the median house price was about $120,000.

Yes, the gap was widening, but home ownership was still within reach for most families.

But everything changed because of this man, Luis Raynari.

You're looking at the face of a man who made housing unaffordable in America unintentionally.

Banks would lend money and would hold into these mortgages for the next 30 years.

So banks have to be very careful about who qualifies.

If the borrower defaults, the bank takes the losses.

With that kind of responsibility, they naturally played it very safe.

People either rented or even if they bought a house, they saved for a few years.

And even if they took a mortgage through, they would make a 50% down payment.

And it also made monthly payments very minimal.

It allowed people to prepare their mortgages much sooner.

Housing was a place to live, not a financial instrument.

While working for the Salomon Brothers and trading securities, he introduced the idea of turning mortgages into securities and lobbied Washington to legalize them.

At first it did not attract a lot of attention.

It was new, complicated and nobody knew how to monetize them.

However, Wall street quickly re realize how much money could be earned from these mortgage backed securities.

Even though that it was detrimental to the average American.

In the long run, an entire industry was formed by bundling mortgages into securities and selling them to investors.

Because these securities were backed by a real house, it was easy to market them.

Banks no longer had to held into these 30 year mortgages.

They would create the mortgages and sell them to investors at a profit and quickly cash out to create more mortgages.

Investors wanted more mortgage backed securities, but to create them, you had to create more mortgages.

So lenders had to make it much easier for people to qualify for these mortgages.

They allowed low or no down payment at all.

They also approved borrowers who previously would have been denied.

That meant more demand and that meant higher housing prices.

At the same time, mortgage rates fell because mortgage backed securities attracted investors from all across the globe.

And while that boosted affordability in the short run, it created unsustainable surge in demand.

That huge demand pushed house prices to a completely new level.

Since 1990s, house prices have increased by 250%.

While wages have increased by about 80 to 100%.

So essentially, house prices grew three times faster than the average income.

House prices grew so fast that the consumer Price index that tracks inflation had to exclude housing because houses stopped behaving like a consumer product.

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Because mortgage backed securities were relatively a new financial instrument, investors were afraid that the mortgages inside them would default.

So they purchased credit default swaps, essentially an insurance against those defaults.

Investors and the banks were confident that they're protected against any kind of defaults.

But insurance companies on the other side have sold far more credit default swaps than they can possibly cover.

Imagine an insurance company insuring your car but don't have the money to insure it.

Then you get into an accident and the insurance company cannot possibly cover it.

Now scale that to millions of mortgages and you have a recipe for a disaster.

So from 2003 to 2007, house prices increased by 35%.

This was the fastest increase in house prices until everything collapsed by 2008.

By 2007, the total value of the credit default swaps increased to over 60 trillion doll.

When investors realized that, they started massively selling off their mortgage backed securities.

And a banking crisis led to a housing crisis.

Between 2020 and 2022, house prices increased by about 40%.

So why is the housing market not collapsing?

Especially when this spike was much bigger and much faster.

So after the 2008 financial crisis, the government introduced multiple regulations to prevent insurance companies from selling more insurance cover.

And that limited the ability of the banks to provide mortgages.

So they only provided or offered mortgages to responsible borrowers whose income they can possibly verify.

That dramatically reduced the number of high risk mortgages.

Since then, the total value of the credit default swaps have fallen from over $60 trillion to as low as $5.5 trillion.

So a 2008 style financial crisis today is almost impossible.

But 2020 still should have caused a massive housing crisis.

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If Nobody Can Afford a Home… Why Isn’t the Market Crashing?

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