Houses built on sand

I was going through my newspapers from the last week--since I can't hardly get into them during the work week--but there was an interesting article that had some of the same questions I have been asking myself for some time.

But first, some background:
As I noted before, my wife and I are back into looking for our "next house." There is some pleasure in this ("look at that," "I like the way that one looks," "What the heck were they thinking painting that pink?") but there is also a fair amount of pain. The Minneapolis-St. Paul area real estate market is like a lot of others, in that the median values of houses are spiraling upwards at a pretty good clip. This has led to us inquiring about prices of specific houses only to hear "This property is priced at *insert $1,000,000+ value here*." (And no, you don't necessarily know prima fascia as to whether the house is a millioner, so we are not just being dumb)

Now my wife and I are both engineers and make a pretty good amount of money. Our debt level is low and pay our bills, contribute to our 401(k)s and all that jazz. But we can not understand a few things:

• How people are swinging the mortgage payments for these places,
• What the heck they are doing (careerwise) to get this money, and
• Do they only eat ramen noodles?

So anyways, this article in the Wall Street Journal had some answers for me, aside from posing these questions that had been in our minds. The gist of it is that people are taking interest-only mortgages and selling before the "real" payments are to be paid, they are taking multiple mortgages and using the equity to buy additional properties to rent, and generally living on the edge. One guy had something like $15 million in property and $12 million in debt. There was concern in the article that if the rental market doesn't keep up, this scheme falls flat.

But for me, I was pretty stunned. I'm an engineer, not a realtor. I do what I do best. The idea of many of my peers (or fellow citizens) doing this sort of thing really shocked me. Are they doing it because it is trendy? Are they hoping this will be the way to fund their lifestyles? Are they being smart about the investments?

Just more things to think about when we drive around, looking at all of the "million dollar babies."