I think that the real estate downturn won’t affect consumer spending enough to cause a depression. Americans have an amazing ability to move on. People will let their houses go before they cut back on their steak dinners and ice cream. Eventually, they’ll say f— it, I’m not going to let the house own me. They’ll walk away and move on.
Actually it turns out that mass foreclosures might be good for the economy because people will put their incomes to consumption rather that debt payments. That is preferable to owners tightening their belts to make mortgage payments.
Holding on to real estate albatrosses is what caused 15 years of stagnation in Japan. The beauty of the American economy is the ability to cut the losses and let better owners manage the looser assets/properties.
I see a 50% drop in real estate prices from the peak but I don’t foresee a protracted downturn in the general economy.
