I'll jump in. Leverage is like anything else (including guns) -- it can be used for good, or bad. Some examples...
1) The Good: For most people, owning a house is a long term thing. They live in it for 20 or 30 years, then sell it when the kids have moved out and they don't need the space after which the built up equity gets added into the person's retirement savings. In this case, borrowing is a good thing since it allows a person to pay for the house "as they consume it" (in economic terms), and this allows it to be a better deal then renting. Compound that with the fact that most 1st time home buyers don't have the cash to buy a house outright. The only people who have that kind of value built up will be the people selling their house, and they're generally not interesting in buying a bigger house. So without leverage, everyone's house values would be in the tank because the market would be tiny since lots of people couldn't afford to buy a house.
2) The bad: Some people buy houses merely as investments (not bad in itself) and then leverage themselves to the hilt with OPM (other people's money) on a bet that the value of the real estate will go up. That's all well and good as long as a) the property values go up and b) the buyer can make the payments. If either of those two things (not even both, but either) happens to go south, you've got big problems.
As long as the people in case 2 are a relatively small portion of the market, it's not a big deal. But if a large portion of the market invests in such an unwise fashion, then the whole economy will have major problems.
Just my (and not someone elses) $0.02...
