The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply. Buyers have a greater effect on price than sellers. In the extreme, market prices converge to the maximum loan as GP described. In practice, people with higher incomes, liquid investments, or previous home equity can out bid individuals who assume the largest mortgage they can.
The price is determined by the intersection of supply and demand. With a bull market in real estate, demand is greater than supply. Buyers have a greater effect on price than sellers. In the extreme, market prices converge to the maximum loan as GP described. In practice, people with higher incomes, liquid investments, or previous home equity can out bid individuals who assume the largest mortgage they can.