Wow, if you’re a trial lawyer get ready to make some money, right?

Not so sure. First, a lot of these lenders will be rotting corpses by the time lawsuits are filed. Not much money to win anymore, unless they go after the State of California for failing to regulate. Like taxes?

Second, not sure there exists a legal foot to stand on since attorneys woulod be clamoring for the “murder weapon”, a.k.a. the gun that was put to the mortgage signatory’s head.

Disturbing info from a large prime wholesaler. Signed docs and they may not fund the loan because it is unsaleable according to the Wall St banks like Goldman or Bear.

The inflation will be massive when it finaly trickles down.

The other thing to consider in this cycle is the normal buisness cycles and how much overspending was done on the cheap credit.

So, there was probably borrowing against the future there as well. This should all keep rolling in over the next couple of years.

The FED tinkering is probably going to cause all of the down cycles to suddenly line up.

so… great depression here we come.

Cyclical factors may also be at work. Real interest rates may prove unsustainably low: if so, a crash may follow soaring house prices.

A risk also exists of self-sustaining upward (and on the opposite side of the cycle, downward) spirals: higher house prices lead to more borrowing and spending, faster economic expansion, still higher house prices, and so forth. When prices fall, however, declining housing equity, shrinking borrowing and spending and widespread defaults may generate a contraction in economic activity and in house prices.

A big question therefore is whether house prices have overshot equilibrium levels.

http://www.ft.com/cms/s/b7e802.....e2340.html

Where prices have risen far faster than underlying incomes, only two possibilities exist.

Either prices have moved to a higher equilibrium level, in which case future purchasers will have to save more and consume less. That would itself have significant economic implications. Or they have reached an unsustainable level, in which case they will fall in real terms. That would have far more significant economic implications.

The future will tell us which and where – possibly quite soon.

Excellent article and read. I recommend it highly.

This is the thing that gets me most. Prices went through the roof, but incomes have not. The average income in 2000 was (almost) enough money to buy the average priced home in 2000 assuming standard loan terms (20% down, good credit history, low debt-to-income).

I still see a lot of people say “But this is California, things are differnt. We’ll never see 50% price declines” Sure, there are lot of high income families in California who can support high prices, but wait and see what happens when there are twice as many homes for sale as there are buyers.

I’ve been reading your site stealthly since last October and you’ve been right on the money by the way.

Not only will prices fall, but a lot of marriages will fail. So not only will there be ton of houses on the market there will be a ton of milfs’s too…I wonder if anyone on Camille street needs a Sancho.