People panic way too much! The US economy is fine. We had a bad year last year because of the credit crisis and housing crisis, but with all the negative news the US S&P is still up. It's growing at a slower rate, but it's not in the dumps either. People seem to forget that the US has a very diverse economy. If one falls sector falls, the next sector can still be strong. Remember US techonology stocks, they were in the dumps in previous years. Last year they had their best results and still growing. If I were you all, buy Microsoft and other techies. When these stocks reach in the $100+ range or more, you'd be thinking to yourself, we could've bought it at $20. The US is also still a country of small and mid-size companies. Don't you all remember this is a huge sector of the US economy and this sector is still growing. Has anyone of you heard Pinkberry? Very very popular here in Southern California. A small business that's about to explode. Just watch them in a few years.

Ann, Pasadena, CA, USA

Love how some of these guys atttempt to put off an "in your face" disaster by the stroke of a key. Like "The artic will melt in a few decades" and a year later with billions of tons of ice melting it's "Hey, where 'd that new ocean in Greenland come from?" Now it's like "We think the market 's really gonna get bad in a few years." Meanwhile, they're driving through California and going "Hey why are all those people living in tents? Ah it's nothin'...must be some new Spielberg disaster flick. Man they know how make things look real, don't they?" Sheesh! What nutjobs.

Richard, Bossier City, USA/Louisiana

Why not get it over with and just ratchet up the interest rates to 15% in 2008, a-la fed supremo Mr Volcker. Let's not stretch this train smash out for 15 years; why not get it over with in a 2-year depression. At the end of it the US dollar will not be worth much, but at least America can rebuild and export products again. That would give our kids the best chance at a future.

james, london, UK

Jeff, you're just wrong about SS benefits. SS can pay out at current rates until at least 2040 when you will be around 94. If immigration rates remain what they have been in the last decade OR productivity remains just under what it has been in th past two decades, then it is sustainable indefintely. You will also more than get your SS taxes back -- how soon depends on how much you've earned/been taxed, but in the unlikely event you have been at the maximum income level for 40 years (currently around $100k/year $6200 in SS tax per year), you will get it back within 8 years (by the time you're 73); if you're closer to the minimum level it could be as little as 2 or 3 years. If you retire early, you'll get paid SS earlier and recoup your taxes earlier (and you'll contribute less). There is also zero risk -- anyone who worked for Enron or WorldCom I am sure thinks thei SS benefits are a real safety net.

Mark, London,

The 'buy low' crowd is going to get their arses handed to them this time. Move to gold/cash and wait this out. The market has not come close to factoring in the staggering losses ahead for the banks. Wall Street is in denial.

chris, Chicago, il

"This is the start of an endless decline for the US economy."

Repeating this endlessly won't make it come true. (And hasn't despite it being repeated since the 1950s.) It seems that with every problem that comes along, someone is ready (and hoping) to hang "imminent U.S. decline" on it. A few years later it's a distant memory and people are on to the next "HUGE IMMINENT CRISIS!"

As an illustration of the hyperventilation and emotional reading of poor, often ignorant reporting on the current U.S. "housing crisis": Despite the so-called "crisis" in the financial and housing markets in the United States in 2007, the net worth of U.S. households grew $4 trillion. That's equal to about 170% of the entire GDP of China or Germany, and not much smaller than the GDP of the UK and France combined. In one year. Despite the "crisis" and losses. Sort of gives the lie to the idea that even a possible trillion in lost value is going to do more than temporarily dent the U.S. economy.

Michael, OKC, USA

I can't help it but notice that the economists are ALWAYS surprised when the latest economic data comes in. What it tells me is that they do not have a clue what they speak of and I would not put a penny in their stock. US recession? That is nothing but liberal/socialist wishful thinking. Yes, there have been some extremes and they will be corrected by the market, but, if my memory serves me correctly, every time somebody wagered against the US economy they lost.
We had a housing bubble and it will correct itself (the people who lose the houses they could not afford would have paid rent somewhere else anyway) and the dollar will go up again.The US economy is much stronger than that of the EU. I think the dollar is being manipulated. As they say: buy low!

Shawn, Wheaton, Illinois

Whoa you Americans are a gloomy lot. You appear resigned to being shot by the firing squad at dawn! I find it quaint and somewhat scary reading your posts to note the hint of gilt about your pecarious housing and general economic position.

Martin, London, England

Dear sir,

Japan's GDP reached a peak of $5 trillion in 1995. Since then, it has stagnated and interest rates are below 0.50 per cent. All that was triggered by a $1 trillion bad debt in her banking industry.

If US has $3 trillion exposure to bad debt, her GDP too may freeze at the current level until 2020. Consequently, I expect Fed interest rates to fall below 0.50 per cent before the end of this decade. It means equities and exchange rates too are unlikely to recover before 2020.

The only way out is - Reagan style dramatic shift in technologies.

Sadat, London, UK

Mikail,

The Dow hit a low of 7286 in Oct 2002 and a high of 14164 in Oct 2007. Pretty close to double.

Use this site to check dollar values;
http://www.measuringworth.com/exchangeglobal/

1980 Canada$ = $.85 US
2002 Canada$ = $.63 US
2008 Canada$= $1 US

1980 UK pound=$2.3US
1985 UK pound=$1.29US
2008 UK pound=$1.98

1980 226 yen= $1 US
1995 93 yen= $1 US
2008 111 yen=$1 US
( Remember the Yen terror?)

1999 Euro = $1.06 US
2001 Euro =$.89 US
2008 Euro= $1.45 US

1981 1.70 yuan=$1 US
1994 8.63 yuan = $1 US
2008 7.3 yuan = $1 US

Oil ( adjusted for inflation )
Dec 1979 $100 bbl
Dec 2007 $99 bbl

Harry, NY,

Read my essays in here:

Corporate America: What Went Wrong?
http://corporateamericawhatwentwrong.blogspot.com/

Deacon Elurby, Grants Pass,, USA/Oregon

Funny thing is....I cant even get a loan up here in Canada....but I am going to be paying for this mess

Chas, Elgin, Canada

Having read the comments, I can see the alarming correlation between the British and American economies- homeowners paying through the nose for the speculative value of ther homes, people borrowig and using credit well in excess of their means, and a sluggish export economy.

But the key, diverging criteria is this- unlike the U.S, Britain doesn't have an export economy,as we have nearly destroyed our manufacturing sector, and we now import everything from cars, coal, steel e.t.c... with the associated trade deficit to boot. Because we (the British) pride our abilities in generating wealth through over-speculation in housing, and our counting-the-money-doing-the-bulls**t industry, a crash in real estate values will have mortal repercussions for the 'creative' British economy.

By comparison- the Americans should think themselves lucky as they have a healthy, material economy to soften the blow.

Darren , Greenhithe, Dartford, Kent

Existing home sales increased 0.4% and were pegged at 5 million units last months. Unbelievable that these purchasers are buying now. Goes to show the greater fool theory is alive and well. Two years from now when their resident value depreciates another 20% maybe they will learn a lesson in economics. Purchasing a home now is a fool's game.

Tom Gemelli, Fairview, Oregon

Ok, so its the Dems for noticing the sub-prime crises and the plunging US dollar. Plus abortion is causing a recession ... and voila Bush is great.

You GOP'ers can remain blind to the reality. Keep voting for the military/industrial complex at your own peril.

Robert, St. Catharines, Canada

It may start with housing, but I think that may be the highest profile problem that everyone is focusing on. Seems to me its been the easy availability of credit that has put the squeeze on many Americans. For instance I own a business, make a decent living, drive a 10 year old pick up, and get by with a little extra cash in case of emergency. However I'm constantly amazed at how many here have two brand new cars, a home, a four wheeler, a boat. All financed, and whos combined family income I know is less than mine. I owe little....they owe tons...and it seems to me its only a matter of time before the entire house of cards falls down on them. A layoff...an emergency...and these folks are overstretched and overdrawn. Recently, at the peak of high gas prices, I saw a person pull up to the pump in a new 2007 model car. Doing good huh?. I don't think so. They pulled change out of the car side pocket to put in about $3 in gas. Its going to get worse.

Murph, Madisonville, USA/KY

I truly have alot of sympathy for the people who have found themsleves in a negative equity situation - whether it be from irresponsible specualtion - but this market correction will serve to bring joy to the 10,000s more young couples who want to start families and who now find their wait to get on the property ladder is nearing an end. maybe the multiple house rent speculators who drove the market up in the first place will now be forced to sell at a price affordable to the genuine core members of society - young home buyers.

Tony, Shanghai, China

If the UK Government had been a truly "Democratic" body representing the security and interest of all the British people as it claims to do, it would have legislated against the proliferation of credit in order to protect the ordinary citizen. However, we all know that the Government is comprised of front men for the boys who really call the shots in the UK; i.e., those who own big business through a myriad of offshore tax haven registered shell companies and onshore managed accounts. These people are phenomenally wealthy, pay little or no tax and know the inside track and are the market makers. These same people control supposedly democratic governments and hence control policy making. So, given these realities, what hope has the poor British citizen got? Answer, they are the real victims, the wage slaves and battlers trying survive in a system stacked against them. We have to hope that there really is a God!

Nigel Maund, Perth, Western Australia

The dirty little secret no one wants to think about is that all housing in Europe as well as America is hugely overpriced. I live in a government subsidized low income studio flat. I pay $1000 dollars amount. My wife and I also have over $70 000 dollars in outstanding student loans. How can I compete with someone in India, Mexico or China. As global trade increases standards of living in United States and Europe will have to decline. And, a big part of that decline must come in housing.

When you take out 300 000 pound mortgage think about what you are going to do when you become redundant and you work is outsourced to India? We can survive having higher wages and higher costs of living but not massively higher wages and costs of living. It simply won't work.

Robert Hotchkiss, San Diego, CA USA

First, Bilderbergers and Illuminatti are not the same people. Bilderbergers are elites, most who are affiliated with the Council on Foreign Relations (CFR). All secretary of States have been members of the CFR since the 1970's. The CFR is also allied with the Tri Laterals, who want one North American Entity. The Illumunatti are not allied with the above groups. The Illumunatti are an athiest international business association. It is important to understand who the ruling elites are. By the way, Reagan briefly campaigned against the CFR,but yes, Edwin Meese was a member.

Geo, Melville, NY

Old Dave - You are one smart guy - you are right on the mark with your comments. Trouble is ... it is going to drag us all down with it!

- Mark in AZ

Mark, Thatcher, USA/Arizona

Robert Schiller is very prudent in making forecast.

The root cause of the imminent U.S. recession lies in the huge trade deficit.

How can an economy perform well with borrowing and spending?

Judy , Atascadero, CA,

Someone said that massive government spending is all that's keeping us afloat. What fertilizer. How can spending billions of (stolen) tax dollars on destruction be all that's keeping an economy based on production afloat? All sides are poorer because of war, even if the dollars that paid for it are legitimate counterfeit (backed only by faith).

Saying that inflation will make it easier to pay the war debt is like expecting more vegetables from your garden while using less fertilizer and water. Our savings is very important for helping our garden to grow, even if your garden is a shop or a factory. Since inflation robs the individuals who hold dollars as well as those who hold our nation's debts, those individuals will be less able to continue producing at the same levels that allow for savings, investment, future growth, and unfortunately, taxation to continue to pay that debt.

Just when you get a horse to the point where he needs no food or water, he'll up and die on you.

Richard, Pittsburgh, PA

Bush, nor any other politician had anything to do with the coming decline. The villain is YOU, Mr., Mrs, Ms. American. YOU follow mass "crowd" reasoning. YOU are confident financial markets will forever go up just to accommodate YOU. YOU consume because YOU have a American birth-right to do so. YOU listen to people like Buffet and when he speaks YOU buy. Why? Buffet has one interest and that does not include making YOU money but it does include YOU assisting him to make money. When he or others like him speak they are "steering" YOU...poor ignorant YOU. YOU are a sheep waiting to be sheared. I will close by giving YOU a little advice, mark it down on your calendar and see who is right on Jan 1, 2009. Sell asap all securities traded on the stock exchange. Buy short term bank CD's with 80% - 100% of your holdings. If you want to be braver buy Ryurx (S&P inverse fund) with 10%. Wait this thing out for 24 months otherwise YOU ARE FAST TO BECOME A VICTIM

Old Timer, Thriftville, USA

When I was taking the US 2000 Census, I met a black woman who had purchased a house in the sub-prime market. She was a maid, & so was her daughter. Between the two of them, they made maybe $27,000 a year. I wondered then how the bank could risk a loan on their small income.

Later, I heard Greenspan saying the housing markets were overpriced, with some as much as 35% over their real value. This sounds like déjà vu.

I hate to say it, but this is how "free" markets work. Houses go up in price not because they're worth more but because there are salesmen out there running up their prices for sales commissions. Example: my father's house was bought for $9,500 in 1970, now it's appraised at $45,000. Exact same house, no improvements. In fact, it's depreciated.

How do we turn back the clock on inflation?

J. Rhinehart, Spartanburg, usa, sc

the average person is the idiot, buying homes for 3 times their
worth--thinking it would hold that illusionary value forever.

john, new york, new york

Along with the slump in the housing market, average folks
are finding prices going up on utilities, especially oil heat,
milk, fresh fruits and vegetables, etc. As homes depreciate,
real estate taxes and other taxes are soaring. Those of us
who are retirees ( and who have serious medical issues as do
my husband and me) find it harder and harder to cope with
financial stresses and strains. We live in a modest home,
not a McMansion. Out-of-pocket medical expenses are
outrageous. However, we do NOT want universal health
care a la Sen. Clinton. We need oil refineries in the USA. We
cannot continue to embelish the billionaires in the Middle
East. And, we need action on the Alternative Minimum Tax!!!!
The US dollar is plummeting! Where are our Senators and
Representatives on all these issues? Answer: Nowhere!!!

M. D. Dunn, Chelmsford, MA (Middlesex County)

All the conspiracy theories and Paulista propaganda aside, how this happened is very clear.

The subprime loans were made at a time when interest rates were low and had stayed low. There was no reason to believe the incompetent Fed would start raising rates with no sound reason for raising them so high. That led to excessive rates once the ARMs expired.

The mortgage lenders took out mortgage insurance at closing to cover these loans so the lender would be protected. All the lender had to do when the ARM expired was renegotiate a fixed rate loan at a reasonable rate, and everyone would come out a winner. But, as one lender told me, they make more money by foreclosing and getting the mortgage insurance. The vast majority of those being foreclosed on now could afford to pay slightly higher mortages and keep the loans from defaulting. The Fed and the mortgage lenders just couldn't settle for a half a loaf. Now we all will pay.

JD, Waleska, GA USA

In every part of our country there is unrest. It does not matter if you are talking to the uneducated or the rich. The general agreement is that it is about to hit the fan.
What katrina really tought us is that civil disorder is a moment away and there is not enough of them to control the Mob. Faced with civil disorder the police will protect their families first. I do not blame them.
If this happens, what are you going to do? Their first move will be to try and take away your ability to protect your home and family with force. If you do not think that there is a plan on the table, you will get what you desirve. You already are!
In simple truth, when right is wrong and wrong is right, the wheel truns to a new direction. Bring your maps boys.

Jeff Shaffer, Tampa, USA / Florida

Don't blame the government for the housing mess. Mania requires irrational behavior on the part of both buyers and sellers. The people involved in these bad housing deals are the only ones to blame for the current situation. People need to take more accountability for their actions instead of crying to the government for a bailout.

Joe Reis, SLC, UT

"The only thing keeping the US afloat right now is the MASSIVE military spending. When this debacle in Iraq comes to an end and the insane spending stops, it will be time to pay the bill for the war. With a much lower dollar its not going to be pretty."

The bill for the war is paid as it goes, and the money borrowed has been borrowed at the equivalent of "low rates." The lower dollar actually makes it EASIER to pay off the foreign component of that borrow money. If you'd take a look at the broader economic fundamentals, you'd understand that the U.S. is actually in a better and improving position fiscally relative to many of its peers in Europe and Asia, though you certainly wouldn't know it from the coverage the U.S. is given - which is traditionally "doom and gloom."

Michael, OKC, USA

I'm afraid 2008 is going to be a bad year, not only for America, but for many places around the world. Here in America, the real estate meltdown appears to be going from bad to worse. The large financial institutions are playing some sort of shell game with their bad loan portfolios, and the Federal Reserve seems hell bent on flooding the world with more dollars at the expense of savers everywhere. Of course, this will only put off the day of reckoning and make the eventual bust even more tragic. And don't forget the upcoming presidential election. Neither party wants to address the hard issues, and they all seem to have the full support of the establishment media. The average Joe is clueless: watching football games on the new flat panel TV, drinking beer, and playing with Christmas toys. The Nintendo Wii was hot this year.

John, Scottsdale, AZ

Come on, this was caused because thousands of people wanted something they ould not afford. Instead of saving or learning to live with less stuff and less space, everyone wanted more, more, more. The motgage companies only provided it. No one wanted to say no, we can't afford this. You had people in huge houses that were essentially broke. This is chickens coming home to roost for both the lenders and the home owners. They took a gamble and lost.

Jack, Lindenwold, USA/NJ

All interesting, many homes are overpriced! but; unlike "Tulipmania" you have to live somewhere! you CAN NOT eat tulips. Having been in real estate since 1967, there have been ups and downs. I remeber EVERYONE thought it was over after the "Keating Five" in Ca....Wrong. Remeber a sign in Seattle during Boeing Bust saying "the Last Person Leaving Seattle turn off the Lights"..well today home prices in the Seattle area are going higher! The old saying "Location, Location" still hold true. Especially when you have Microsoft in the area! It is true Congress has mandated Banks HAVE to make loans to folks that are not qualified, and that fact has much to do with this "so-called crisis". Also Flippers trying to get rich quick. There is NO quick way to make/accumulate real wealth (especially with Liberal Dems writting TAX LAWS!

Steve, Oak Harbor, Washington USA

Even though many posters seem to think America is on death's door and knocking loudly, I am not worried about America. The simple reason why America will continue to succeed is that its people believe that it will succeed. It may have good times and bad times, but, in the end, its people's faith in themselves and their great nation will continue to propel them to greater and greater heights, as it has done throughout America's history.

Scott, Houston, Texas, USA

Boys, It isn't just the Bush 43 administration. It all of this madness started a slow pace and was escalated by Bush 41 and Bubba Bill Clinton. Both Democrats and Republicans are in this. It is the idiocy of "Free Trade." NAFTA ruined Mexico's economy, that's why they're coming here in droves. I can't blame them. Free trade and cheap labor is why Europe is over run by third worlders.
Incredible and unimaginable "GREED" by some elite group, is ruining our nations an cultures. All the while, the entire Western Peoples are brain washed day and night by, "P.C. Speak, P.C. Think," and the killing of free speech, free thinking, and free questioning, common to our peoples.
George Orwell was a prophet, not just the author of exciting books.
Get ready Boys, the future ain't gonna be funny! The MONSTER has been growing on our backs for decades, and he won't be easily removed! I hope not, but there may be civil unrest and blood shed of "BIBLICAL" proportions!

Old Dave, Cooper, U.S.A./ Texas

People must understand that Bush is just a very stupid front man for the real power, the New World Order / Illuminati, Bilderbergers or whatever you want to call these people. We know the names of most but not all of these criminal elements who are stamping out democracy, freedom and rights and assume power themselves through a puppet like Bush.

But their influence isn't confined to the US, these are the same criminals behind the destruction of democracy and the formation of the European "Soviet" Union and the foetid corruption therein.

All you have to do to see who are behind it is to look to see what corporations and families are getting very rich under Bush.

Genocide, misery and hardship mean nothing to these people and the sooner people wake up to the real enemies, the sooner they can be brought down.

Of course, people can do nothing in their customary fashion except moan and wait for the second coming of Christ to clean up after their apathy

Garry, Swansea, United Kingdom

The banking systems liberal credit caused by Greenspan was not the only factor in the current real estate mess, but it was motivated and fueled by greed both by the subprime borrowers ( flipping homes ) or attempting to cash in on the run away increase in home values, real estate agents and brokers, mortgage brokers, mortgage companies and real estate developers cashing in on huge profits. The cities and counties were also in on the take receiving large developer fees and lots and lots of new real estate taxes. These cities and counties have already spent these future real estate taxes that will be uncollectable. Get ready for some real pain.

It takes two to tangle - a buyer and a seller. The financial "Pimps" put the two togeather.

Thomas, Fairfield, CA

Residential and Commercial Real Estate prices MUST eventually fall back to their 1982 levels. Governmental economic policies ( based on certain economic philosophies)instituted by the Reagan regime and then followed by each succesor administration has led to sequential asset bubbles, and a massive deterioration in personal and corporate balance sheets. The prevailing economic policies cannot be further pursued a there really is no real equity left. Accordingly the future US Political administrations will have to reign in spending if they are to defend the US$ reserve status, and likewise individuals will have to reign back consumer spending:There simply is no "meat" left in the US economy to spend away. The years ahead portend a very painful adjustment in asset values, way beyond what Schiller dares to utter publicly. The combination of increases in the real cost of food and energy, the onset of asset liquidation by retiring yuppies will ensure a prolonged bear mkt in all assets.

John, Bohemia, NY

This is exactly what Dr. Ron Paul has been warning about for years.

As the Federal Reserve monetizes the federal government's deficit (by printing money and inflating the money supply), interest rates are pushed artificially low by the torrent of new paper money, artificially encouraging demand for homes (thus pushing up the prices).

This is a classic bubble, which, like most bubbles, is caused by government meddling in our private affairs.

It is no coincidence that this has happened during the Iraq war, with its trillion dollar price tag, all paid-for by stealing value from the dollar by printing an extra trillion to pay for this overseas fiasco which has served only to further radicalize many Muslims and Arabs. As the CIA has warned for years, our half century of interventionism and meddling in the Middle East is the primary motivation for asymmetrical, terrorist warfare against America and her allies.

Richard B, Los Angeles, CA

Hey AJ,

So its the consumers fault forr being greedy. This makes total sense. The lending firms have thousands of pages of government legislation at thier back, and thousands of high priced lawyers to write the lending documents.

It is sooo easy for the commoner to understand. They should have no problems understanding lending terms, effects of rate changes, market conditions, etc. The commoner should be able to understand but the lenders themselves need high priced attornies to understand the docs.

Typical republican answer - dont accept blame for tragic policy and blame "the stupid masses"

after 8 years of unchecked republican policies our economy is on the verge of depression, the republicans accept no fault, but just blame Clinton, stupid masses, abortion, gays, illegal immigrants - anyone but themselves

Petr Fitz, Crawford, TX

remember the S&L scandal and old neal in colorodo. same blueprint but larger scale; thank you america and god bless

Joe Gil, Point Baker,

8 years of unfettered Republicand policy causing a possible depression. What to do???

Blame the liberals, blame the media, and blame the illegal immigrants.

It's not the Republicans (who were charge) fault - its everyone who doesnt think or look or speak like Republicans who are to blame.

It has nothing to do with rob from the poor give to the rich economic policy it has to do with everyone elses morality.

Now please invest in my S&L because God would approve.

Marvin Bush, Dallas, TX

Democrats, with huge influence in the media, know that everytime you mention the word 'recession' that it makes it more likely to happen. Most of a recession concerns is started from nervousness over future economic concerns which are purely emotional and generally not based on a factual cause. The emotional concern CAUSES the ' fact ' which in itself creates more emotion and more likeliness of a recession. Democrats know this, and especially with the Iraq war becoming less of an issue, their hope is recession fears and media blitz discussions will turn the economy downward to help them get elected in 2008.

Vince Hugh, Cumming, Ga

What does abortion have to do with the economy? God's direct intervention perhaps? Speaking of selective sinfulness, He must really be steamed at those evil homos, Larry C. in partucular. A more compelling explanation of cause and effect would be an economic policy that has been fueled by excessive consumption and extreme indebtedness, on a personal and national scale that cannot and will not ever be paid off. Can a society comprising 6% of the world's population continue to expend 50% of the world's resources through reckless borrowing? We owe China big time for bankrolling the Iraq War. It's funded by budget "amendment" and not tax revenues, while the super rich continue to get a free pass at the expense of future generations. Is it still "Morning in America"? Time to wake up and smell the Voodoo coffee!

Stephan Zambero, Boise, Idaho

Okay, he's an economics professor at Yale. It means he's a pointy-headed academic who knows nothing about what goes on in the real world. Last I checked, people are still dragging themselves out of bed and dragging themselves to work in the interests of sustaining themselves and their families and making useless acquisitions. The subprime mess is a mess, but definitely overblown. The US economy is robust and in my opinion, can handle it. Look at what happened after the S&L crisis in the early 80s - over fifteen years of the S&P going up. Who knows what's going to happen in the next fifteen years, but we have all kinds of "experts" who think they're smart predicting disaster. One day one of them is going to be right. Probably not today!

econdude, Omaha, Nebraska

Could be in a recession? I think we're already starting the recession and no one has woken up to it yet.

Joe, San Marcos, TX

Professor Schiller has been wrong for 5 years, predicting recession in the midst of the longest running peace time expansion. He is another liberal who is just wrong.. Why anybody puts stock in him is beyond me. Why anybody writes an article without mentioning his track record is criminal

Peter James, NYC, USA

Typical democratic answer is the to play the blame game. Truth is over 95% of Americans are paying their mortgages on time. If there is any blame it's on the unscrupulus lending policies brought on by teaser loans to people who had no business buying any home, let alone one with rising resets. Greed, not politics, fueled ignorant borrowers to overextend themselves, and now they will be back where they belong..renting and saving to buy a home they can actually afford.To blame an administration for FED policies is shortsighted, ignorant and wrong. The war had nothing to do with the housing bubble, just as the Clinton administration had nothing to do with the internet bubble. Think for yourselves, it's common greed, not common sense.

A.J. Miller, Bethlehem,

You can't blame Bush for this any more than you can blame Clinton for the tech bubble (remember that?). It is human nature. It is the "greater fool" theory. People get excited and greedy, and on a mass scale that creates a kind of "mass hysteria" where people keep buying long after they should stop and say "Wait a second, is this really worth what I'm paying?" Then, when enough people finally realize that $600,000 for a one bedroom condo is actually quite a lot of money, the prices start to drop. Blaming Bush is just silly and childish.

chris ferro, Alexandria, VA

There certainly is a bit of exaggeration in Prof. Schiller's pronouncements but the people "voted" to power the Bush administration --which led the country into an unnecessary, unwinnable and horrendously expensive war, (based on Government lies); left the financial sector with little regulation leading to "liars loans"; and a budget which will pander to military as well as other unnecessary expenditure, resulting in higher dollar depreciation and sales of military equipment to the future Saddams. Its time for introspection!

Acharya, Bangalore, India

TO Alan Heaton:

You are right on about the credit being created out of thin air, but the banking system was only reacting to Mr. Greenspan's money presses. The person or group of people responsible for this mess is our Federal Reserve the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

Mike Stevenson, New York, New York

blame illegal immigrants for everything...racism is alive and well in USA.

El-conejo, Weston, Missouri

We live in a finite world but our economies are based on the assumption of infinite expansion. That means there has to be a pinch point somewhere as global growth slows. As India and China develop and push up the price of resources the slow down has to happen in the already developed economies. This is just the first symptom of the switch in economic power from the West to the newly developing economies. There will be more symptoms to follow.

John Small, Faversham, UK

Why are people blaming the Bush Administration?

1 - because this credit meltdown is a direct result of their policies

2 - because it happened on their watch and proves that "industries do not regulate themselves"

Why are Republicans blaming democrats:

1 - because they realize that their policies dont work except for a few uber rich and they are looking for a scape goat

2 - because Republicans do not care about their country they put party first

Hmmm, another Bush in the White House and another banking scandel of historic proportions where the masses lose all their savings and a few close friends of the administration make billions.

Do you remember the S&L scandels?

Party before country! Why not blame the gays or illegal immigrants next.

Petr Fitz, Crawford, TX

Syd,

I will give the Republicans the credit that is due them:

1 - it is the direct result of their ridiculous policies that our country is now being brought down by this cedit crisis.

2 - the Republicans started an illegal war that we will never win in a country that we did not have to go to war with. It is costing the country Trillions of dollars, not making us safer, and hurting our economy

3 - it is the fiscal stewardship of the Republicans that has devalued our dollar and brought close to a depression

4 - a few of the administration buddies will get rich while everyone else will lose their entire savings and their homes

keep voting republican, keep voting against your best interests. You may lose everything you and your kids have but atleast gays wont be able to marry!

Petr Fitz, Crawford, TX

Wow a whole 35% ...after home prices have already
gone up by 200% 300% this was all part of
the Republican Funhouse Of Mirrors along
with the EZ MONEY loan sharks giving anyone
with a pulse credit cards with limits of $50.000 or more....but it made people feel good to think
their double wide on a dirt road was worth $200.000....at the same time in America when
a worker at GM had less job security than
a GM worker during THE GREAT DEPRESION
It also allowed GEORGE GUMP BUSH the opportunity to stand before before the cameras
in 2004 like RONALD REGAN and ask America
"IS YOUR HOUSE WORTH MORE NOW THAN
IT WAS FOUR YEARS AGO"

Bobby decker, Leitchfield, Ky.

U.S. banks have precipitated this problem with predatory loans to poor and struggling families. Usury rates of 25 to 35% for credit card cash advances imposed on people who can least afford it. It is no wonder these persons become overwhelmed with increased payments they cannot afford. The banks are worse than loan sharks because they receive governmental protection for their unethical behavior.

Franklin, New York,

And in other News, a Meteor could fall and kill everyone.

Garry, Melcher, USA

Being an average person living in an above average housing cost environment (L.A.) causes me to wonder where the above average brains are in our country? When people's salaries can't sustain their debt does it take "experts" to figure out something won't work?
And we Americans with our ever optimistic view that there is nothing too big (profit, debt) and who have turned to prayer to get us out of scrapes?
Reality? We don't do reality.

judith markoff hansen, los angeles, California

What is THIS PLACE COMING TO....

Our children can't even become independant anymore......because of the COST OF LIVING....is out of control!!!

30 years ago we could move on and be independant rent was approx $300/month and everything else was right in line with our gas and groceries.......

The FEDS with their cheap interst only did one thing......RAISE THE PRICES out of reach for most hard working folks......

As these prices drop to where they should have been all along (GREED is all part of it) this will only create more defaults.....because

WHO wants to pay out the ass for a home that has been overpriced to being with.....if you can't sell your home for what you owe.....I see mounds of "JINGLE MAIL" (turning in the keys) and walking away......

This is going to hurt middleclass families than ever before in my life time.......

maybe the next generation will see proper housing prices and a banking system that doesn't look like LEGAL MOBSTERS

Laurie Smith, Sayward, Canada

Colorado Eric ignores a glowing success in home mortgages has been the DOCUMENTED immigrants who have ITIN mortgages, with tax numbers so they can pay taxes. Strikingly positive results, with default-foreclosure figures way less than Eric's Colorado deadbeats. And states want to deny these workers drivers licenses, so they can't get around to work. Wonderful, Douche Dubya. Punish the ones who work with pride and pay their debts. Ameriquest and other Bushskys gave large contributions to politicians to thwart sub-prime mortgage reform in New Jersey, Georgia and elsewhere. $5 million from the founder of Ameriquest to political campaign organizations that favored bush, $200,000 to Dubya for his 2004 campaign. See the Wall Street Journal's story "Lender Lobbying Blitz Abetted Mortgage Mess (mess for the lenders, that is). As a result, borrowers in those states have been hit harder than in reform states. Korruption in Amerika is nothing new.

Bruce, Glens Falls, NY

The US is in recession already. You just dont know it yet. The GOP/neocon leaders will do everything they can to hide that fact until the next election is over.

The only thing keeping the US afloat right now is the MASSIVE military spending. When this debacle in Iraq comes to an end and the insane spending stops, it will be time to pay the bill for the war. With a much lower dollar its not going to be pretty.

The US will be paying for Bush's errors for a long time. But the US will prevail in the long run. 300 million middle class consumers are a very powerful ecomomic resource if managed properly.

Robert, St. Catharines, Canada

The current real estate mess is going to be followed by a major credit crunch in 2008. This will also include problems with credit cards. In the Clinton and Bush the Younger we have had over expansion in construction and too much easy credit. Professor Shiller brings up good points. Hold on to your seats. We are going to have a rough ride.

Jim A, Northbrook, IL

I predict NONE of what he says comes to pass within 2 years. Our economy has been beating all odds for most of Bushes two terms. Remember naysayers predictions for the deficit??

Hail Bushonomics!!

Matt, MN, USA

This housing bubble has been compared to the stock market bubble of the late 90's in which speculators would have been correctly punished by free markets. Instead, Greenspan, who IMHO is responsible for ALL of this crap, increased interest rates to "control" the irrational exuberance in the stock market. When this caused a premature and accelerated tanking of the stock market and (duh) a recession, he dropped rates to absurd levels (1%) well below free market rates set by the bond market and free markets (lenders) took him up on his offer of "free" money. The world's free markets do just fine when left alone (ie. the price of oil has increased 400% during this time and the world economies have weathered it). The US Fed and Alan Greenspan are single-handedly responsible for artifically screwing up the economy by playing God with the free-market systems and then subsequently blaming the free-markets for behaving rationally.

Rick Snyder, Palm Harbor, FL

This is what comes of liberals offerring everything to everyone with no thought of consequences.

The liberals have been pushing to "help the poor" live like everyone else for so long it has now become detrimental to all.

When will people learn to stop allowing these feel good idiots to destroy systems atht work just so they can feel good?

Politicians spend all the tax rvevenues for more and more freebees to the "poor" every year and look for more ways to devise more tax revenues.

Enough is enough, bring back common sense and put some adults in charge.

Don't let the likes of Hillary, Obama or Edwards be elected, they just want to open the entitlement spigot and devise new taxes.

Gary Boettner, Spartanburg, SC

unless your rich , try to live wihin your means... and for those less smart/educated, life is alvays going to be more complicated and painful... given a chance people will always try to improve their situation; buy a jug of wine, big new truck, even a new house... maybe, all any of us can expect in life is that momentary, short lived thrill.. a leader we could all admire and respect , might help

green eden, soquel, ca

Prof. Shiller obviously doesn't remember the 1991-92 national recession and housing bust in Californa. In California, housing prices declined significantly. There were large numbers of foreclosures. People mailed their house keys back to the bank, etc. etc. It all made national headlines. I guess Prof. Shiller was on Mars at the time.

Five years later, in 1997, all of this was forgotten as property values in California again began their "irrationally exuberant" rise of 10%-15% per year. This continued for nearly ten years, even through the dot-com bust and recession of 2000-2001. It ended in 2006 when Prof. Shiller finally took notice of the phenomenum.

People's memories are short. In five years or less, we'll all be witnessing another housing boom and complaining about out of reach housing prices. By then everyone will have forgotten about Prof. Shiller and his learned exposition in the "Times". Maybe the "Times" will also be forgotten.

Patrick C., Irvine, CA

Perhaps now, people will realise that it was the securitisation tail wagging the property bull market dog in most countries. Credit was easy as lenders believed that they were not running specific risk within the tranches of the securitisations they purchased. This created the problems, as the originators of the loans did not care about the credit quality, as they only had the risk for a short period of time.

While property does have a role as an asset class, if it is your principal private residence it is silly to view it as a liquid asset. As the last few months have shown, when credit dries up, liquidity disappears. You simply can't sell your house quickly or at a good price.

The sad fact of potential falling real house prices is that credit will be tightened. So all of the first time buyers who simply cannot buy a property will still be in the same boat. In 10 years, you might want to look for a house.

Anon, London,

Here's the dirty little secret no on will talk about. This is a result of the Illegal problem in the US. Illegals were getting loans that they were not qualified for or could pay for. Since they didn't have Social Security numbers, it was inevitable that they used someone elses, therefore they could walk away easier from the property. And they did! If you take them out of the equation, the foreclosures would have been slightly above normal, not this massive fall. This practice caused a large group to be able to falsely qualify for lower middle class homes which then pushed those homeowners to higher middle class homes. Once the lower class home market folded, the more expensive home market followed.
It is just the tip of the iceberg. States are now cracking down on illegals. As illegals begin to go unemployed at a higher rate, the health care industry will see the next big fall. Then crime will rise exponentially. The experts are right...Recession is around the corner

Eric, Arvada, USA/Colorado

Here's Shiller's recent paper for the Kansas City Fed:

http://www.kansascityfed.org/publicat/sympos/2007/PDF/2007.08.01.Shiller.pdf

There is no precedent for such a run up in prices in so many countries at the same time. Since the run up in prices since 1998 has not been matched by a similar run up in rents or the cost of building houses, the increase of over 15 percent is primarily psychological and as such is vulnerable to a price correction.

My point here is that it is a global problem, Cutting interest rates in the USA to reduce risk the the USA financial system while other countries are raising theirs to reduce the risk of inflation to their systems, is likely to have no effect.

In a Fed presentation:

http://www.federalreserve.gov/pubs/feds/2007/200740/index.html

Housing prices decline over the next 5 years resulting in declining consumer spending over the next 5 years.
A long recession for the employed Gen-next-ers to contend with. Hope they're prepared.

Charles, Seattle, WA

John Jauregui - How is it that every conversation degenerates into an argument on how abortion is the root of all our ills? I don't see the connection between the so-called legal expediency of Roe v Wade and its impact on the economy. Perhaps you can enlighten us as to what you mean.

Thomas Hobbes, Dayton, Ohio

Making comments like these I assume Robert Shiller is buying real estate as we speak. The "experts" stated similar things in the late '80s and said we had a banking crisis that would dwarf the S&L crisis. It tailed off quickly and housing prices again jumped. Housing is not like stocks. Most people don't just take a hit and go on. They get 2nd jobs or cut back on purchasing and limp through. Just as real estate wasn't as good as people thought in'04 & '05, things are not as bad in '07 and '08. The longer a market is down the more severe its recovery when it goes up. By the way, check out the Carolinas. They are having increases, especially around Charlotte ( 5% increase in values in '07), but not there only. Charleston, Greenville and other SC cities also had and increase, overall in '07.

PAUL CHARLES, summerville, sc

The fundamental issue here is the way that the US spends more than it can afford on foreign adventures. This money should be invested productively within the US: cut taxes, build efficient road networks etc.

Home prices are low compared to most of the rest of the world (UK average home price is $460,000 - in the US it is less than half that). Average home owner can afford their home (take average value minus home equity = mortgage balance and compare this to average mortgage rate, which has been falling.

At its core a supply and demand equation The US has good population growth and builders have cut back new home starts.

Like most "research analysts" on Wall Street, you have to understand their motivation before blindly believing what they write. Schiller profits by gaining headlines as people use his indices and other financial products.

Rod Williams, NYC, NY, USA

The question that everybody should be asking is: "Where did all this credit(money) come from? The answer is that virtually all of it was created out of thin air by the banking (financial) system.

Without this absurd banking system in which the bankers control themselves and the governments of the world sit by and scratch their backsides watching, this could not have happened.

A review of the money system and the powers behind it is long overdue.

Alan Heaton, frankfurt, Germany

I agree with Mark from Vancouver in that I find this sort of laughable. As a gen Y'er I feel no remorse for those baby boomers who drove up these prices. My sympathy extends nowhere for those who knew darn we'll there loans would go up or that they shouldn't be buying 400,000$ homes.I have seen figures that are staggering in terms of the baby boom generation and there lack of savings. I hope these folks have to work into the 80's for the economic b.s. my generation is going to inherit due to them. I figure to get in my laughs because 15-20 years from now when my income tax rate is a 40% and my future entitlements are slashed in half....... laughter may be harder to come by.

Chad Schueler, Inver Grove, MN

There's no way a nation can put 55 million of it's children to the knife over a period of one generation through the legal expediency of Roe v Wade and not impact the economy and pay-as-you-go Social Security in a big way. In both cases the chickens have now come home to roost.

John Jauregui, Garden Valley , ID

As occured in Japan, I agree that a long term decline in home prices is also going to occur in the US in 2008 and beyond.

However, there is a big difference between the two. The US is at war and spending money like a drunken sailor. I believe the Fed will continue to reduce interest rates in the short term in an effort to control the severity of the long term down trend.

This is contrary to good thinking. This will give a false indicator that the housing market will rebound, when in reality it will not. When one tries to control prices, one must also think about what will happen when the control is removed. President Carter was not responsible for the incredibly high prime interest rate that occured during is term. The responsibility was with Nixon who tried to control prices.

Wiseman, San Diego, CA

This is the start of an endless decline for the US economy. It's manufacturing base will be decimated by the stronger emerging economies, it's service economy will be undercut by India and the Philippines, it's infrastructure requires tax increases that will kill any chance of growth in wealth, the increasing retirees will sap the budget of funds for growth because of increased healthcare and reducing taxes.

The outcome will be a deflationary environment, initially producing lower inflation and house prices but will continue in a death spiral, as in Japan. The final outcome will be a convergence with emerging economies before any true growth can be realised. This will be accompanied by hyper-inflation, riots and the spread of diseases because of global warming.

Justin, Nr. Lincoln, UK

I think the issue is emotional. If you own or rent you have your own potential gains or losses. I fully see the potential for $4,000,000,000,000 in equity. Every investor that doesn't maintain his house drops everyone elses values. Some neighborhoods are being boarded up after these irresponsible loans were made and person that financed took the cash and moved. These empty homes will tank an entire area... the half-finished dustbowl neighborhood in AZ, the rough working class neighborhoods that had the too many 100% refis and investors. Some of these buildings are being emptied of copper after the residents move.
I heard some complaining about working people getting shafted, but much of the damage was done by using the house as an ATM. A lot of people benefited, with vacations and cars, etc.
Speculation was everywhere here in Massachusetts... especially in the wrong areas.

PT, South Coast, USA/MA

The baby boomers are starting to retire, the peak will be about 2012. They will have to take money out of retirement accounts and put it where????? In real estate! This will depress the stock market and send real estate back up to new highs.
The major problem we have in this country is people who refuse to live within their means, using credit to live the high life. At some point it has to adjust. Then I and those like me, who have no trouble living within our means, swoop in the buy up the assets. Cash is king, and I will use mine to stock up on properties to re sell to the boomers.

boomerboy, Canon City, Colorado

A bigger train wreck is coming in about 10 years due to lenders who are making large loan to value 25 and 30 year mortgages to individuals age 50 and higher. Do these mortgage borrowers plan to work until they are age 75 or 80? As the article points out, you can’t count on real estate inflation to bail you out like it did in the past.

Kevin, Iowa, USA

A minor comment: The media communicate from time to time with irrational exhuberance that home sales have increased, but as compared to which months and to which years and at what selling price are matters that are for the most part not even mentioned. And so it goes.
Denos

Denos P. Marvin, Laurel Springs , North Carolina

You people do realize that Capitalism requires business cycles and business cycles require recessions. Without them capitalism doesn't work. Historically, the US is due for a recession anyway.

Beyond that, the US economy, at over $13 trillion (thats just under 30% of all goods and services produced in the world) is large enough that it an weather things like the subprime mortgage crisis and falling housing prices in stride.

Chris, Atlanta, GA, USA

I am by no stretch of the imaination a Bush fan, but blaming him and/or the Republican's is absurd. This is a simple case of two basic human traits - greed and stupidity. When they are combined it always leads to the same financial mess, after all it was less then10 years ago that people were buying stocks at a hundred bucks a share give or take in companies that were burning cash like there was no tommorow. All those new metrics of valuation like "eyeballs" and "stickiness".. When it was all over everyone said "how could people be so greedy and stupid"...duh...just a replay.

Jon, Santa Barbara CountyCa, US,

Where does this guy get his info? If he would look out the window once in a while he would realize we are already in a recession and working steadily towards a Depression with all the banking scandals and how our Government prints more money and throws it into circulation without a 2nd thought.


The value of the US Dollar is falling at an alarming rate . Well better buy yourself a gun and some survival supplies as the food shortages will be coming in 2008.

Nailer, southern fried chicken, gulag amexica

My grand father taught me about dirt. "There is only so much dirt," he used to say. I started buying California when I was 19, at $400/acre. Marginal buildings I bought in 1986, for $160,000 and owner financed, are now valued at $1 million. Did I believe this? Not really. When things are too good to be true, they probably aren't true. (That is again my my grand father speaking.)

The last property I bought in California, was in 1999. It just got way too stupid. The only other property I have purchased since then is 40 acres in southern British Columbia. This has been on a steadily rising value curve ever since. I am back where I started - - raw land with running surface water.

All of my California properties are about 9 miles from down town San Francisco. I do not see these property values falling. The suburbs will kill you, but could you not see that? Hold and Roll, P

P W Brown, Oakland, california

The housing finance mess is bad enough. Now the Los Angeles Times has pointed out a car-financing mess. Many people owe more than their vehicles are worth!

David Martin, Vero Beach , Florida

If this is what faces America, where you get a decent house for your buck, imagine the fate awaiting UK housing. UK houses will suffer a double whammy- a house price crash, compounded by a currency crash. In time , 5 to 10 years from now, UK house buyers may finally get some value for their money.

Kara Swart, London, UK

We could probably talk our way into a recession if we try hard enough. That would certainly help the Dems in their campaign in '08. "It's the economy, stupid", "worst economy in 50 years"
Same old lines they always use. They can count on this publication to assist them mightily.

freddy, Clear Lake, MN , USA

This has very little to do with lending , borrowing is the problem . Borrowing on inflated home values while the middle class disappears . There can be no bad credit unless there was first good credit . Good credit which the middle class can no longe afford as new jobs do not pay what the old jobs used to pay . Most of the USA has kept the country afloat for too many years with borrowed dollars , borrowed on or against real estate , 401's , insurance policies , etc. . The unemployment rate is / has been reported with oversight or out and out lies when it comes to the terminal unemployed and a lot of these folks have hocked the ranch up to the hilt . Many years will be needed to right this and we better start today .

Bob Graham , Las Vegas, Nevada / USA

Try buying a house in the Urban areas of Belguim , Paris , London, Dublin , Rome and you will pay at least 3 times the price of a home with similar amenities in the USA. In fact our homes have become so cheap that people from those ares are buyin aggressively ,now, in the USA.

Homes were once considered a place to sleep(bedroom communities) but now have become commodities; because of energy supply, clean water, sewage treatment etc. they convey an added living/enjoyment value that is not availble in many areas of the world. This external demand will only grow.
Shiller strikes me as a flack for the anti. USA crowd and doesn't have any real practiacal experience other than inventing allusions in his mind and then pedals them through naieve book publishers and other academic interests as gospel. I completely disregard anything he proffers.He seems to be an agenda pusher probably born of jealousy against those who accomplish the great Ameri

Fred W Hendy, millington, Nj

Dr. Shiller has been talking about overvalued housing prices for many years, well before the recent runup in housing prices. His forte seems to be predicting asset bubbles, the great majority of which have failed to materialize. While housing prices might well decline further, it is bad economics to forecast a prolonged japan-like recession because of asset prices, ignoring the very important differences between the two countries in terms of demographics, spending/consumption patterns, financial transparency, and wealth creation. As long as the American economy remains growth-oriented, with (relatively) limited government management of the economy and a focus on productivity enhancing investments that grow the productive potential of the American worker, the housing bubble will sort itself out just fine.
Russell Lamb, Ph.D.
Economist
Washington, DC

Russell Lamb, Washington, DC

Just wait until the baby boomers start dieing. That's when the real housing deflation starts.

B Williams, Washington, DC

According to Moody's Investor, housing prices will continue to drop into 2009., and the hardest hit areas will be Calif., Florida, and the Midwest. (Indiana, Illinois, and Ohio)
The middle class is going to continue to experience wage stagnation, and the upper class will become richer, widening the income gap.
According to ex-Fed Chairman Greenspan, the Central Banks have lost control of long term rates, and the slowing economy is going to force the banks to raise rates.
Not good scenarios.

C. Berndt, Whiteland, IN

I would rather have my Social Insecurity tied to housing rather than our bankrupt federal Government! I don't expect much...

Chris, Birmingham, AL USA

Houses should be a place to live and not a speculation. Prices will fall until they reach 5 times the amount saved by a buyer. That is, until the buyer is able to put 20% down on the house. Less consumption and more saving and the bottom will be reached sooner.

scott, Northfield, illinois

No, Paula. The Republicans want to give people a CHOICE rather than assume you are too dumb to make your own decisions, like the Democrats.

Todd, Golden, CO

As bad as the housing market is even now, an investment in real estate or the stock market right now would yield a far better return for our dollars than the current social security system. It's pretty sad that I'm going to lose more of my money by allowing the government to take it, than if I had the same dollars invested in real estate.

Desert Rat, Gilbert, AZ

just wait until the housing depreciation hits your local property taxes. Localities that rely on property taxes will be hit with budget short falls and be forced to raise local taxes or cut services ....

MItch, Henry, USA

I think that we have entirely too many people, making too much money playing with other peoples money! If some of these so-called financial gurus would get a job producing something other than "paper", they would know the value of a dollar/pound.

Tim, Claysville, Pa/USA

The boosters here all seem out of the same 1928 barrel-taking their wishes for the truth and citing privileged areas they assume will rest above the water line. They won't. 1928 is coming. Fast.

Keynes, Marseilles, France

Hey Paula from Milwaukee,

Your broad stroke bashing of Republicans was wrong. First, let me ask you what yu mean by "our Social Security dollars"? If I remember correctly, they were proposing that I could put MY SS dollars in an investment that I chose for MY money.

Stuff it in a mattress if it makes you feel better, but don't blame the "Republicans" cuz your over-mortgaged house isn't worth what it used to be.

Jimmy, Phoenix, AZ

Correction: the average yearly increase in the Dow in the 6 year period from beginning 2002 to end of 2007 is 4.84%.

Michael, Austin, Texas

Let it go. The whole thing's a bubble anyway. Liars, bankers and thieves. In the end they all get what they deserve.

Roger That, El Paso, Texas / USA

Jimmy,
You are a perfect example of why we are in this mess. People like you who form opinions without regard to the facts gave us GW. Now look at the mess we are in.
Here is a historical graph of the DJIA. As you can see it has most certainly not "doubled" since 2002.
http://stockcharts.com/charts/historical/djia1900.html

My suggestion is that you make an effort to educate yourself on the facts before you sprout off an opinion which just serves to illustrate your ignorance.

Andrew, Orlando, Florida

Not mentioned is the decline of the US dollar by approximately 40% against other major world currencies. It is a major transfer of wealth from the US to the rest of the world and wipes out most of the benefit from the Bush tax cuts and even a lot of the paper gains of the real estate boom. And ironically it is mostly Bush's wealthy supporters who are hurt by that decline; working class people may actually benefit a little as some manufacturing jobs will be created as the US competitive disadvantage in labor costs is reduced.

Charles Hall, Bronx, NY

what goes around comes around. the us sucked the world dry for so long it is time they taste thier own food

saud, riyadh,

Living in NY, the highest taxed state, I am willing to bet as the value of my home shrinks my assessment and taxes will not.

Otis Jackson, Groton , NY

I work in Japan for one of the world's largest financial groups. The entire monetary system itself needs reform, and the only presidential candidate with any real understanding on how to do so is Ron Paul. The Federal Reserve's monopoly is at the heart of the problem and the way to deal with it is to eliminate legal tender laws so that Americans are not held held hostage to the dollar. As soon as the principle of true competition is introduced into the monetary sphere, so that currencies must compete with each other, people will choose better currencies over worse currencies and any currency that wants to succeed will have to be managed more responsibly than its competitiors. This will result in sound, non-inflationary currency, will put an end to the skyrocketing accumulation of debt, and will greatly enhance stability of the economy. The subprime fiasco could not have happened if Ron Paul's advice had been followed. Follow Ron Paul and the Constitution! Every other "leader" is blind.

Christopher Witmer, Tokyo, Japan

New home sales have plunged...to 1995 levels.
Wait times are the longest since...1993.

Short-sighted w/short-term memory loss.

Ah back to the bountiful 90s!

Since the historical (1978-2003) average hosuing price increase is 5% per year, the past decade+ has been an anomaly, which may be followed by another anomaly.

In 2005, the FDIC was warning abt homebuyers overbuying and using weird mortgages to do so.

Harry, NY,

If you want to fix the housing problem, get rid of the mortgage interest tax deduction. People buy more house than they can honestly afford because of this deduction. The people who build and sell houses make huge profits from the inflated prices on these new homes being built. Think about it - How much home could the average person afford without the deduction? Many people buy houses because of this market distorting deduction. They only plan on staying in this new home for 3-5 years and then sell it for a large profit. Because they are paying almost exclusively interest for these first few years and deducting the mortgage interest from their taxes, they are living practically free for those years.

Warren, Springfield, Ohio/USA

Cyclical. Every ten years or so for housing. Want to make money? look at Presidential cycles and the market.

This mortgage mess is directly attributable to the administration. Remember the Pres touting 60% homeownership... largest moniority homeownership percentage in history... sub-prime lending is how they did it. They allowed zero down FHA loans in violation of federal law, they lowered the credit standards (look at the increase in FHA's debt to income ratios).

Mike, San Antonio, Tx

Tim M says he earns $56k there for his wife must earn $94k, I wonder what she does to earn that amount ?
Is their Billion the same as the UKs? Who invented the phrase Credit "Crunch",is that slang for "Sqeeze".

Derek Bevan, Huntingdon /Cambs, England/UK

Loren, Its not so simple. Its not a case of houses becoming cheaper Wooohooo, but a case of people with mortages being in the position where they are owing more than their house is worth, investors losing out and at the same time, people very much like yourself can get in to trouble. You have to think about the bigger picture.

Kris, Bristol,

Actually, the Gov't wanted you to voluntarily choose to put a portion of your SSA money into a private account where you would choose where it was invested.

From the Mar 10 2000 market top until Sep 10, 2001, the NASDAQ lost 66% of it's value, or $3.5 Trillion. The NYSEtopped on Jan 14 2000 and by Sep 10, 2001 had lost 18% of it's value, or $2.3 Trillion. That's a total of $5.8 Trillion before 9/11. After 9/11, the Oct 2002 lows saw a total loss to the NYSE amd NASDAQ from 2000 of $9.3 Trillion in valuation.

Poof!

Harry, NY,

It's great that America's leaders enjoy an understanding public. Jimmy, for instance, calculates that "the Dow has almost doubled in price since 2002". The Dow that year started out at about 10,000 and ended 2002 at about 8,500; it is currently at about 13,500 (13,365 at the latest close). So much for its almost doubling. But, at the beginning of 2002, the US dollar index was at about 120; today it's at about 76. So the value of the dollar has declined (virtually without interruption) against other currencies from the beginning of 2002 to the present. Taking 2002's highest Dow level and multiplying by the US dollar index at that time, we get 1,200,000, while if we multiply the present Dow by the present US dollar index we get 1,026,000. By this rough measure, the Dow has lost some 15% of its value during the past six years. I suppose that Jimmy's got one of those super sub-prime mortgages, too.

Mikael, Reykjavik, Iceland

Bubble or bust...its all an invention.

Hugh E Torrance, London , England

What is the news about housing prices changing?
That trees don’t grow to the sky?
Housing is not a security. The Wall Street types can't tell us where the stock market is going and they certainly have no expertise in real estate.
You keep your securities in a drawer or on your computer - you live in your home. So it went up, so what, the roof still leaks. So it went down, the new neighbors seem nice and the grass looks great.
Tommy Shannon

Tommy Shannon, Phoenix, Arizona, US

I read Professor Shiller's book a few years ago and found the comments he makes about Vancouver, British Columbia, Canada to be very accurate.
One very big bubble indeed.
Yet there is one demographic fact that most people miss.
In Canada one in three people alive were born from 1947 to 1954, and they are the ones playing this housing game.
Canada only has a birth rate of 1.48 per woman, well below the replacement level.
So between the years 2012 and 2019 a full one third of the country will become seniors at 65 and over.
In the year 2015 there will be MORE people over 65 in Canada than under 15.
Who is going to buy these large homes then?
Do you really think I want some 4 or 5 bedroom box that costs me $300 a month in utilities?
As a generation X'er I think this entire thing is funny, and when this bubble breaks it will be truly laughable.

Mark, Vancouver, British Columbia, Canada.

Ride it out, folks, just like we have before. Settle in and enjoy your home.

JoAnne Gottlieb, Henderson, USA NV

Stuff it under your mattress, are you kidding me? These same guys are debasing our currency at an alarming rate, down 10% against the Euro in 2007 and 7% against the Chinese yuan.

Don't stuff the cash under your mattress, put it into a European bank or monetary fund. Pronto.

Michael Buchannon, Philadelphia, United States

The comment that "republicans wanted to put our social security dollars into those very same hands" is silly. Currently, SS surpluses are not saved or invested in any form. They are spent. All the so called "trust fund" holds is special gov't securities which cannot be traded. The underlying problem is not policy but demographics, which affect all advanced industrial economies without exception. Since SS was created as a pay as you go system, what it pays to the cohort of retirees is limited by what it takes in from current workers. But the number of workers perretiree (the "dependency ratio") has been droping for decades. When it hits 1, the average received by each retiree will be the average paid in by current workers.

At least the republicans did attempt to solve this long term problem. the democrats have limited themselves to lies and demagogaury. (actually at one point Bill Clinton also was in favor of investing SS surpluses).

Mike Maller , New York, NY

As I was saying, the root of this problem is the accounting treatment of securitizations and the way it encourages unsound lending practices. That is the issue more so than teaser rates on adjustable rate mortgages. Alan Greenspan did nothing to make niche lenders issue mortgages to investors who own 15 condos in Miami. Greenspan did nothing to make lenders issue loans to people without income documentation, with DTI ratios north of 50% or FICO scores under 600. Greenspan didn't encourage lenders to issue 103, 105 or even 107 LTV mortgages like Countrywide did.

Accounting gains as they relate to securitizations are almost a pure function of sales volume and quality, obviously, played too small of a part of the equation. I used to work in this field so I know a little about it. I managed departments that reported on these transactions and I also worked on teams that issued these securities.

Dan, Shreveport, LA

The real estate markets in the north west, WA, MT, OR & ID have remained somewhat stable, however, the big losers will be the cities, counties and states as they have made budget projections based on continued migration of new folks from the lower 48. If you cannot sell your home you can not move to these states. Big box retail stores have also moved into these areas counting on the continued migration of people from the lower 48. Tough times will be ahead for these retail outlets. Also the reduction of projected tax revenues will cause serious financial problems for these areas. Be sure you check out the financial status of the northern communties before you make your move.



As usual governmental agencies spend tax monies before they get it.

Thomas, Helena,

On the off chance that someone with the power to make the required change actually reads this, here's what caused the US housing market to get so overblown. In 1997 tax laws were changed making most profits from selling a residence tax exempt.

I said at the time that law made housing the best investment in America, bar none (for a time anyway.) As expected, housing that very year started to accelerate in price beyond the CPI. At the peak it reached nearly 200 percent of expected value, going far beyond what the tax change would dictate as speculators entered the markets across the country.

Now we have topped and Shiller is right; we will crash severely with the total declines averaging 30 to 50% depending upon whether we stop at fair value or overshoot on the downside as we did the upside.

Here's the rub: As long as the 1997 tax treatment stays in place, it will provide the incentive for us to do it all over again. But first we have to wash out the current crop of speculators.

Rod E., La Crosse,

Greed has fueled the American engine since Manifest Destiny. That individual desire of finding the Comstock lode in a dirty hole in the ground. Reality of economics is never far off, and people find themselves, much like Twain wrote in Roughing it, accustomed to the art of slinking, as they avoid the bill collectors and their former well-to-do friends. So those who say it's a Democrat or Republican thing are political shills. It's a greed thing. Nothing more.

Jay, Joliet, IL

As far as I can see Shiller is nothing more than a political fraud! The book that made him, "Irrational Exuberance" came out in March of 2000. I've been involved in the writing of books on finance. It takes about six months to get a book published. If I assume that he took about six months to write the book then he was using data from early 1999. Since then the DOW as increased 46% and the S&P 20%! Would you call this "Irrational Exuberance"? Look at what you'd have lost had you taken his "wounderful" advice!

He's also created a contract on the futures market based on housing values across the country. You see this often mentioned in recent articles. What they don't mention is that the contracts are rarely traded-often only 1 trade daily. Most of the other futures contracts trade thousands and in some cases hundreds of thousands daily. Another Shiller flop!

Just because he has a job a Yale we are expected to take his words as expert. Sorry, I'm not!!!

John L. , Rancho Cucamonga, Ca

In response to Jimmy from Lakeland, real estate is not a commodity. Like all consumer products and services, it is subject to the affects of supply and demand, but it is far from being a commodity. A pound of sugar is a pound of sugar no matter where it's located. However, a 1,350 square foot house in Lakeland, Florida is very different from the identical house in Portland, Maine or say San Diego, California or even Haines City, Florida. The same applies to all product classifications of real estate; vacant land, office, retail, industrial, institutional, multi-family, hotels, etc.

Joe, Melbourne, Florida

Low interest rates did not cause this problem; improident and downright fraudulent loans did. The sooner this is recognized, the sooner the pain will be over with if it is properly treated.

Don Link, san Antonio, tx

I always find it unnerving when the first response to an article is a conspiracy theory. Obviously the housing bubble existed, is bursting and there have been well-documented losses for homeowners. For someone to say that the media has shifted its attention to the economy merely because Iraq has been getting better in order to pin something negative on the current administration is ignorant and unwarranted. All the news needs to be reported, and if housing is in decline, which it most certainly is, it too must be reported, and that is no slight to any party or administration. What it is however, is evidence of falsely-inflated consumer confidence and bad short-term investment. I'll be honest, I'd be pleased to see our falsely inflated economy hit the reality mark for a while, then maybe Americans will start saving. Let's be real. In America, for every dollar saved, four more are spent. The exact opposite is true for China, and they are buying us out.

Ian, Duxbury, MA

Pessimi