Signs that the boom was ending appeared in spring 2005, in places such as Boston and San Diego. After several years of surging house prices and nearly a year of rising interest rates, many home buyers simply could no longer afford the outsized mortgages needed to buy. Homes that had been so affordable just a few years earlier were again out of reach.
The frenzy began to cool. Not only did bidding wars among home buyers vanish, but many sellers couldn’t get their list prices as the number of properties for sale began to mount. Moreover, many sellers found it extraordinarily painful to cut prices. Flippers feared the loss of their capital, and other homeowners with big mortgages couldn’t take less than they needed to pay off their existing mortgage loans. Realtors were loath to advise clients to lower prices, lest they destroy belief in the boom that had powered enormous realty fees and bonuses.