The price rise was classically self-reinforcing in a way that often creates bubbles. Because most houses are bought with borrowed money, home price gains have magnified impacts on equity values. For example, if a household used their savings of $50,000 as a down-payment on a $250,000 house, and that house went up in value to $350,000, then the household’s investment tripled. This allowed for more borrowing and attracted other buyers and other lenders to finance them, as this lending was very profitable.
