John Wake

Haven't First-Time Homebuyers Heard of Roubini?

The housing market will bottom out long before the banking industry.

When housing improves, sure the banks can make some money on new loans but that income will be a drop in the bucket compared to the losses hanging over their heads from those 2005-2007 loans with huge negative equity. Years from now that homeowner will retire or lose his job or get divorced or have a kid and will move out. And when that happens, the banks will end up forgiving tons of debt in a short sale or will foreclose and lose a ton of money that way.

Don't tie the housing industry to the banking industry.

Over-Correction in the Phoenix Housing Market

What's magic about 1997-98? It sounds even more ad hoc than 2003. From the graph it's clear the bubble really started to take off in Phoenix in 2004. So 2003 or 2002 are clearly pre-bubble prices.

I'm not saying prices won't go back to 1997 levels. At the current rate of decline, home prices could be there in six months or so. But then again, if we extrapolate the current rate of price decline, homes will be free in 2 years... so extrapolation is not such a great economic forecasting technique.

Over-Correction in the Phoenix Housing Market

D. McHattie makes an interesting point. One of the major causes of the housing bubble was the Community Reinvestment Act which required banks to make sub-prime loans in order to increase homeownership. Now, however, any measures to support the banks or home prices would make homes less affordable than otherwise. The advantage of a possible over-correction is more affordable housing. The bust could do more for affordable housing than the Community Reinvestment Act.