The buyer's cease to believe
At some point the sellers' claims that income and value will continue to rise become unbelievable. In combination with lenders' refusal to finance more speculation, buyers refuse to increase down payments. In the graphic below as buyers bid up prices (cap rates fall) lenders simultaneously reduce LTVs, forcing buyers to finance more of the higher prices. At some point buyers refuse to put up higher down payments. In the illustration below there are no transactions at 30% LTV or less. The bubble stops inflating until something changes.
