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With the Fed controlling interest rates in a regularly lower rate curve I made great money by refinancing my home mortgage in some cases every year with a 1% lower rate, while I was financing my kids college education off my home equity loan, as my home equity went up 10-15% per year.


I don't think you are describing a bubble.

I think the question of whether the value of the average home can appreciate over the long term at a pace greater than inflation remains open. This is complex supply and demand, with demographics, space to construct new homes, and median income among the variables, along with interest rates (which are partly affected by demand for mortgages, so not a completely independent variable).

And, of course, refinancing at lower rates makes sense (if you cover costs)—we turned a 30 year mortgage into a 15 year. Taking oout home equity is a different issue. If you need the money, it may be the best source for a loan, as long as you understand the consequences and that it isn't free money which can easily be paid off in the future because the home's value will keep going up and up.

The bubble though, and not just sub-prime, has been pushed by loans that are bad loans for the consumer unless real estate goes up and up. The assumption behind ARMs and interest only mortgages, etc. is that the house will be refinanced or sold for a higher price. I should qualify that ARMs in a low interest rate environment are dangerous—my father chose the ARM option about the same time we got our 30-year mortgage (I think we paid about 13%) and rode interest rates down. We took the refinancing route and just paid off the mortgage quickly (less than 11 years after original mortgage).
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