I think the reason for the crash is the distortion caused by outside influences other than wages and population trends. I know there’s a lot of talk about it all being the fault of easy credit, but I think the easy credit only exacerbated what was already happening as a result of the owner-users competing with investors for that finite supply of listings.
Take away the artificial stimulus caused by the investors and the mechanism whereby a lot of otherwise completely unqualified buyers were able to satisfy their desire to purchase, and we find a market that is forced to seek a retrun to the equilibrium between supply and the owner-users.
The current downswing started before subprime went belly up. It started soon after the investors abandoned their positions, and that happened as a result of the pricing getting so distorted that not even the liar loans could make them work. Substandard lending going down has only removed the other artificial leg of this stool.
I don’t think the eventual outcome would have changed even if substandard lending had stayed in place. It would just take longer. Substandard lending was still going strong in 2006 but that didn’t stop the declines that occurred then. The investors had already left the building, and they won’t be coming back until they see room for short term profits sufficient to justify the risks of speculation.
