MARKET CRASH - Thoughts?

[Mark Alexander]

Let me start off by saying that I am no means making an excuse to not invest in real estate. I am actually looking to make my first purchase (house-hacking) within the year. Here is what triggers me though:

My full-time job is in the Mortgage industry, and on a daily basis, I see home-buyers getting themselves into loans with little to no money down leaving them with barely any equity in the property. In my honest opinion, I believe that we are in a personal debt bubble (credit cards, student loans, car loans, etc) because of people over extending themselves credit wise. 
Let me show you an example:

Average Joe wants to buy a home for $200,000 putting 5% down:

His income Pre-Tax is $4,200 monthly ($50,400 annual)

The column in the picture on the left represents how mortgage companies qualify somebody for a conventional loan - in this case, Joe's max Debt-To-Income ratio is 46%. On the right however exemplifies Joe's real life monthly expenses vs his AFTER tax income leaving him with a Debt-To-Income ratio of 122%! (Sorry for the bad handwriting!)

If a market crash is upon us and home values see a major decline, my worries are that myself, along with many others are going to be underwater on their mortgages. Is now a bad time to buy? Or does if you find the right deal under market value, should you be safe?

I don't say this to scare anybody or drum up drama, I simply want to know others thoughts on buying in today's expensive market with little equity.

Cheers!