While there will definitely be folks hit hard in the coming years, especially folks with overly dependent on the RE industry, I doubt its going to hit a full-blown depression.
I base this largely on personal experience, the vast majority of people I know (including myself) here in SD are either renters or pre-bubble owners (that re-fi’ed to lock in low interest rates). Only a few are in businesses that are even partially affiliated with real estate.
The one person I know that had one of these ARM-bombs just had a short-sale on his home and is going to rent until the market stabalizes.
I personally have no equity tied up in RE, only a little debt that I’m paying off steadily and guaranteed stable employment, depression or otherwise. Heck, a depression would be a win for me (assuming I don’t get murdered by an ex-flipper looking to steal my shoes); as goods, services and RE would be dirt cheap.
Maybe I just have smart friends (well, I know I do), but I really wonder what percentage of the US population is really as over-extended as everyone here claims.
My impression of the great depression is that it was caused by a clear majority of the lower-middle classes overextending themselves on credit combined with a excessive stock market speculation. The story of the shoe-shine boy becoming a paper millionaire in a few months, for example.
Not to say there aren’t parallels with the current state of affairs, its just the scope of thing isn’t anywhere near the same scale.
I would like someone more informed then I back this up with some data, though.
