If you're one of those seeking a home loan, I'll bet you have a question that many people are asking.

In many areas of the country the prices of houses have doubled since 2000. Some call this dramatic increase a 'housing bubble' that must eventually collapse. In California housing prices have escalated so high that only 10% of California families can qualify for a traditional 30 year loan.

So the question many people ask and struggle with is this--how in the world can people afford the house payments at the prices demanded by the current market? And why did prices dramatically escalate so high? Here's the answer you've been waiting for.

Many factors account for rising housing prices, but here's one seldom noticed. Thirty years ago if you tried to sell a house, you might have a bidder on the house and you might have the property on the market 120 days or more before you get that bid. It was not unsual for a house to sell after being on the market for a year or more.

Thirty years ago many families couldn't afford the downpayment on a house. And many more families couldn't afford to make the payments if they bought a house. In fact, many people couldn't qualify for a loan at all.

Today things are quite different. In the last 30 years financial institutions have developed a whole range of home loans that greatly increased the number of families who could qualify for a home loan. The latest incantation of this trend is the so called 'interest only loan,' where the homeowner pays no principal on the loan for the first few years. This dramatically lowers the monthly payment. And many banks now feature 'no down' home loans where no down payment is required.

The effect of this trend on the market has been to greatly increase the number of families qualifying for a home loan. The increased number of qualified borrowers has dramatically increased the number of potential bidders on houses for sale. So today it is not unusual in some markets to have a house come on the market and attract a dozen bidders in less than two weeks. And some of those bidders are bidding MORE than the asking price. This is one of the major factors in the dramatic escalation of housing prices.

So back to our original question, 'how in the world can people afford the house payments at the prices demanded by the current market?' The answer is that the banks are making it easier to qualify for a loan by reducing the entry level costs and reducing the initial monthly payment. This brings more bidders, which drives prices ever higher, and has led the financial institutions to innovate even more home loan packages to qualify people for the higher prices.

All of this comes with a greatly increased risk. There is, after all, no free lunch. A family with an interest only loan may default on that loan when the monthly payment dramatically increases after the first few years.

When looking for a home loan, the best path to take is to compare loans from different sites. And by all means contact your local financial institutions. Often the best deals are not on the net but down the street.