Prices can only drop so far, though. (Warning: completely hypothetical numbers inbound... they're just being used to illustrate the point, not for gauging real

Prices can only drop so far, though. (Warning: completely hypothetical numbers inbound... they're just being used to illustrate the point, not for gauging real costs) If a 2x4 costs $20 and you need 2000 of them to build a house, the house has to cost at least $40,000. And if pieces of siding cost $20 and you need 1000 of them, then that house has to cost $60,000. That's going to be hard to afford out of pocket. You can save the same amount of a mortgage payment every month, but you still need a place to live in the meantime so you're doubling your cost of living until you fork over the $60,000 in cash. And you might say the cost of a 2x4 would come down too, but if a lumberjack is making $15/hr and makes one 2x4 every hour, then the cost of that 2x4 can only be $5 cheaper before that lumberjack is getting paid more than the value of his work. And you might say the lumberjack could get paid less, but at $15/hr he already needs to work 4,000 hours before he can afford to buy that $60,000 house (assuming no other expenses). That's two years of savings before he can buy a house, with no money for food, no money for an apartment, no money for a car. If you cut his wages to make the house cheaper, now he has to work longer before he can buy a house. And since no one can afford the house anyway, he'll likely be laid off before he saves enough money because no one can buy the lumber because no one can buy the house built from it. And of course, this is all ignoring that none of these businesses are making any money in this entire hypothetical situation. If we didn't have home loans, the cost of housing would go down, but it would still be completely unaffordable without a loan even if the builder was losing money.