Disagree with the article. It assumes that the sellers and the buyers were equally leveraged in their loan to value ("LTV"). If the sellers were leveraged 125% LTV but the tighter lending requirements compelled buyers to be no worse than 80% LTV, then this metric changes the analysis. It also assumes that the sellers' loan terms and the loan terms of the buyers are equal. If the buyers were 80% LTV and qualified for a more traditional loan, then the buyers are in a better position to weather a further drop in the market; whereas, the sellers were in a much more unstable situation. The infusion of the tax credits arguably shifted the risk from the investors in the sellers' notes to a new class of home owners and the investors in the buyers' notes. While this helps those sellers' note investors that may not deserve the assistance, we all know at the end of the day that the rest of us pay the consequence in bail-outs or higher interest rates.

Even at market peak prices, real property is a bargain considering the historical barriers to becoming a landowner. Class mobility is worth a huge premium, as are the feelings of superiority that come with the right to exclude people from a space, and the right to control others by leasing property and collecting rents.

It's probably foolish to assign a huge value to such prideful and controlling emotions and behaviours, but that's the way things really are, IMHO. Accounting for this psychological "dark matter" of real property demand suggests that things are dirt cheap right now (pun intended).

I think the more significant thesis to this article is in the last few paragraphs - that we may well see flat or even a decline in GDP over the next year or so. All the "experts" talk about how consumers have paid down debt, and we've gotten through the bubbles - but what no one seems to consider is that the boomers, facing retirement and possibly college costs for the kids, have also seen significant declines in their assets, such as retirement accounts. The savings rate is going to continue to run in the 6 - 10% range, as everyone is trying to rebuild savings.

I also think most everyone who assumed the "six months of savings" could come out of credit cards and home equity also realizes now that there needs to be some real cash in the bank. And without all that "70% of the economy is consumer consumption" we're a long way from climbing out of this economic hole.

Every time the feds come up with a stimulus that is supposed to benefit the average citizen, the price of whatever is being subsidized goes up. Cash for clunkers is a prime example as well as the housing tax credit. The sellers know that the buyers will be getting a credit and adjust their prices accordingly. That $4,500 credit for the old beater translates into at least a $2,000 increase in price on the new car from the previous pricing, just before the credit went into effect. The consumer is left with a $2,500 credit while the dealer makes an extra $2,000. Keep your eye on the bottom line folks.