I maintain that defense job losses of the last bust were the trigger, not the cause of the last bust. The last bust occurred because the trend had overextended and had to correct. Had it not been defense jobs it would have eventually been another factor. The trigger for the bust of the early 80s wasn’t jobs, it was financing and taxes. The root cause of a bust is that portion of the expansion that is unwarranted present in the boom that precedes it.
We’re not having a bust here because of subprimes and RE job losses – those are just the trigger. We’re having the correction because these prices are way out of line relative to the overall population, employment and wage trends.
I think it’s a huge mistake to think that 2003 is the cutoff date for overvalued loans and foreclosure activity. For one thing, the “parity” level is farther back in the trend at the beginning of 2002 or so. For another, there have always been a lot more refinance transactions than sales; on the order of 3:1 (or more) in many areas. Many of those borrowers were smart enough not to tap the ATM, but there are enough of them who weren’t that disciplined to dwarf the number of at-risk 2003+ buyers.
These borrowers go all the way up the economic spectrum into the $2,000,000 ranges.
One other thing to bear in mind is that in addition to the occupations directly tied to the RE business, there are a lot of buyers in the middle and higher price ranges who are business owners, and whose fortunes rise and fall based on the general economic conditions. For now they are doing okay, which might contribute to the stability of some of these market segments. However, in a general downturn these guys are even more prone to reversals of fortune than most; and when they go down they take their employees with them.
You can’t call RE the economic engine of this last boom without calling it’s demise the “trigger” of the downturn.
