What I hope you will one day understand, is that housing prices cannot -- on a sustained basis -- rise much faster than wages without putting lenders in serious trouble. Banks have formulas indicating what a reasonable debt to income ratio is. These ratios have, until recently, been fairly stable over the years, mainly because the banks that survive are the banks that follow them.
If you look at the ratio of home price/medium income over the 20th century, you find that while there is certainly noise over the years, all told it is fairly stable. Until recently, where it suddenly spiked hard. The reason why is very important, but for the moment just consider that it directly refutes your point that the brief correction is cyclical and not structural. Actually, it's the opposite. The run-up over the last few years is an anomaly, and the price decreases we are seeing is simply a returning to normality. Which, by the way, is nowhere near complete.
The reason the home prices spiked so hard in recent years is because loans were originated solely for the purpose of creating debt which could be sold as a tradeable asset at huge profits. This meant that lenders really did not much care whether the loans would be paid back, because by the time it defaulted, it would be someone else's problem. You have to be pretty suicidal, as a banker, to offer stated income stated asset loans on low fico scores with a trivial down -- if you were planning on retaining the paper.
Because of teaser rates and rising home prices, default rates were very low. This made the securitized mortgages immensely profitable over the short term, so money flowed in to them, increasing demand for mortgages to be securitized, which meant that anyone with a pulse could get one. Which drove the real estate market into a crazy froth.
Home prices up = rising equity = low defaults = high securitized mortgage demand = high mortgage origination = home price up ...
But now that virtuous cycle is a vicious cycle exactly opposite. The high debt/income ratios have made defaults increase substantially, which has trashed the CDOs the mortgages have been securitized into. This not only threatens the solvency of many banks, insurance companies, pensions, hedge funds, etc., it also means that NO ONE is eager to buy more of these debt turds at anything like face value. Without being able to securitize them (read: stick someone else with them), mortgage originators are suddenly not so suicidal, so they're requiring more than a pulse, which makes prices that depend on easy money now unsustainable. Worse, prices are currently so high that, using sane banking rules, only a trivially small portion of the population can qualify at median prices. So the prices fall. As they fall, equity drops, which is the single biggest factor determining whether mortgage holders keep holding it in a falling market. Which increases defaults...etc.
Lower equity also means less money to withdraw and spend on vacations and iPhones. Which is recessionary in a big way. And devalued mortgages have made a staggering number of major banks either obviously insolvent or likely insolvent, which has shut down most aspects of credit markets, so they won't even lend to each other and are starting to hoard their remaining liquid assets. And that's beyond recessionary.
I'm sorry, but housing prices are not going to come back to their 2005 levels. If, god forbid, they do, it will only be by risking a depression in order to make them so, just as we have been the last few years.
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