How Big is the Fall?

According to a Yahoo article titles How Low will Real Estate Prices Go - even in areas with significant year-over-year declines the prices are still and will be significantly higher than were they were in 2000 except - and this is a big except - in areas with continuous high unemployment rates. So in almost all areas, early buyers that did not HELOC their houses still have equity. Those that did not put money down will still have no equity or negative equity.

Here is a look at the article -

The problem is many of the markets that experienced steep 2007 price drops are still a long way from recovery.

That's based on a Moody's Economy.com report prepared for Forbes.com. It predicts that 2008 isn't going to be any gentler than last year on slumping markets like Los Angeles, Sacramento, Calif., Las Vegas and Tampa, Fla., where market weakness is expected to cause 10% to 25% drops over the next year.

... Price drops result from a convergence of factors including overbuilding and speculating and rapid price increases.

... But large-scale job loss has the most potent effect, note Eric Belsky and Daniel McCue, economists at the Harvard Joint Center for Housing Studies. Markets can overheat, overexpand and digest flippers and overexuberant builders, but housing prices are most likely to fall when people lose their paychecks.

Belsky and McCue studied housing downturns from 1980 to 2004 and discovered that the most likely cause of housing price declines were spikes in unemployment.

One interesting thing to point out is all the suburban areas that barely existed prior to 2000 - such as Maricopa County, Arizona and other communities that have very new developments and rapid growth during the Great Housing Bubble. Many of these areas have expansive housing markets, long commutes to urban employment centers coupled with non-existent public transportation systems, and segregated retail, industrial and residential zones. That is not even delving into the costs of upkeeping McMansions and their related amenities.