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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (69991)	1/7/2007 12:24:26 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 306849

real values in the bubble areas need to fall, by at least 50%. if you have a bunch of houses with million dollar loans on them and they fall to 500K, there will be a lot of BKs. therefore, it's more politically expedient to keep up the lofty million-dollar price tags while letting inflation slowly do the dirty work to avoid BKs. you can keep the 1m price tag, but in 30 yrs 1m will only be worth a few hundred K in today's dollars. there, you have your drastic price reduction in real terms, and have avoided mass BKs. probably this scheme will not work and we will have considerable nominal price drops as well as real price drops due to inflation. the reason i believe this is that there are too many heavily leveraged players who have too much negative cash flow. their only path to success is nominal price gains, and they will go BK even if prices stay flat. BKs increase selling pressure, which induces further BKs in a vicious cycle. i am not saying RE will inflate. at best, RE will stay flat while everything else inflates (which is the same as RE going down in real terms). at worst, RE will also deflate.