There is still a lot of liquidity in the global financial market searching for returns. As long as that persists, then there will be lenders willing to extend risky loans (because cheap money is available), and as long as lenders are willing to continue to extend risky loans, then housing prices will not drop drastically.

It also happens that there are a lot of financial players (hedge fund, private equity funds) who are highly leveraged, because volatility has been low. In fact, high risk assets (emerging market debt, junk debt) have very low spread currently. How does it relate to housing? In comparison, a mortgage backed security seems like a “safe” bet with decent yield. After all, it has the house as collateral and may have mortgage insurance and/or Fannie or Freddie’s guarantees.

I really believe that the global financial markets are operating on the edge. Although no one knows what may tip it over and when, it seems that sooner or later risky assets will need to have higher yield — once the market demands that, no lender can afford to extend easy loans anymore.