It seems people always like to point to places like Rittenhouse and Old City and say "Wow, who's buying all these expensive homes?!? The market must be ready to crash!" Well, cities have a limited size to their downtowns and thus a limited supply of homes, and there will always be enough rich people able to buy these fancy homes (now, willing to buy is another story depending on crime, etc).

The real worry is all these homes priced between $100,000 and $200,000 in Philly. Almost all of these homes on the market are small, crappy, old, outdated, or in totally sketchy neighborhoods--or all of the above. With interest, PMI, insurance, and principal included, the mortgages on these homes would be between $850-1500 a month! Now, just HOW MANY working class families out there can afford payments like that??? Exactly. The uber-inflated lower end of the market is totally going to crash since no buyers will be left who can afford this.

An example of crazy lower-end of market:

Fancy House in Ritt Sq in 2000: $450,000
FH in RS in 2007: $650,000 (a 45% increase)

Tiny Row Home in Scary Neighborhood in 2000: $55,000
TRH in SN in 2007: $145,000 (a 165% increase!)

This lower-end of the market is clearly the side that is out of control, and when it crashes, it's pulling the rest of the market with it.