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It depends on how old and how paranoid you are.

The older you are, the more money you should have in cash and inflation-protected Treasury securities.

Assuming that you're younger than about 45 and have quite a long time to go before you retire:

If you're a normally cautious person: you could invest in variable annuities or mutual funds that offer principal guarantees. The fees are high, but someone who's really cautious might prefer to pay higher fees and get a principal guarantee, and the variable part will give you protection against inflation.

If you're just a little bit paranoid: put cash in some kind of fund that puts money in government-insured certificates of deposits or similar instruments around the world, so you've got cash protected against the risk of severe inflation in any one country.

If you're a lot paranoid: Physically go to several countries that don't have treaties requiring them to cooperate with U.S. financial regulators. Go to those countries in person and set up bank accounts there while you're there. That way, you have some protection against hyperinflation in any one country, and you also have protection against the U.S. government going haywire and outlawing foreign savings and investments.

If you're extremely, extremely paranoid: Invest in a small sailboat, sailing lessons and supplies for the boat.

Unfortunately, for too many, a bailout from the Bank of Mom&Dad is not an option ....

http://www.nytimes.com/2007/03/17/bus ... 67b0a99bfc2222&ei=5087%0A



March 17, 2007

Mortgage Trouble Clouds Homeownership Dream
By EDUARDO PORTER and VIKAS BAJAJ


Perhaps the American dream of homeownership is not for everyone.

That may sound at odds with a bedrock notion of society promoted by presidents for decades. But many experts say it is a message that can be drawn from the rising troubles with mortgages provided to home buyers with weak credit.

Several large mortgage companies have stopped making new loans, and others have tightened lending standards.

Hundreds of thousands of families who bought houses in the last two years ? using loans with low teaser interest rates and no down payments ? are now losing them.

Their short tenure as homeowners calls into question whether the nation?s long drive to increase homeownership ? pushed by both public policy and financial innovations ? has overstepped some boundary of demographic and economic sense.

?Clearly we went too far,? said Joseph E. Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. ?It?s not the case that high homeownership is always good.?

Consider Nathaniel Shields, who expects to lose his four-bedroom Cape Cod house in southwest Chicago to a foreclosure in May.

He cannot afford his mortgage payment, which jumped to $1,300 a month from about $1,000 after his loan reset to a higher interest rate last summer. A divorce and the loss of his county government clerical job, which paid $14.80 an hour, have also hurt.

In 2004, Mr. Shields took out a popular hybrid mortgage that carried a fixed interest rate for two years before becoming an adjustable-rate loan for the remaining 28 years. In August, his loan?s interest rate rose from 6.6 percent to 8.1 percent, and to 9.6 percent now. ?I love the house,? said Mr. Shields, 47, who now works in a custodial job with the Chicago school district that pays $10.40 an hour. ?I put a lot of money in the house ? a deck and a new garage ? and they are just going to take the house.?

Kathleen Van Tiem, a counselor at Neighborhood Housing Services of Chicago, has been trying to help him, but says that his weak credit and low income make him ineligible to refinance or modify his loan. Mr. Shields has put his house up for sale, but in a market with many homes available, he has found no takers.

There were surges in homeownership rates last century, but further gains have been slow going more recently, despite the hoopla of the housing bubble and the surge in home building.

The nation?s homeownership rate has increased by only about 1.4 percentage points since 2000, to almost 69 percent last year.

But subprime mortgages ? granted to borrowers like Mr. Shields with weak, or subprime, credit histories ? played a big role in achieving those levels.

This push, however, has meant intense financial strain for many families. Subprime borrowers will spend nearly 37 percent of their after-tax income on mortgage payments, insurance and property taxes this year, according to estimates by Mark Zandi, chief economist of Moody?s Economy.com, drawn from Federal Reserve data.

This is about 20 percentage points more than prime borrowers and 10 points more than what subprime borrowers paid in 2000.

And their payments will get higher, Mr. Zandi estimates, as low teaser rates used to lure them into the market adjust upward after a few years.

When the housing market started weakening, subprime borrowers were the first to feel the squeeze. Almost 8 percent of subprime mortgages ? more than 450,000 loans ? were either in foreclosure or in arrears of more than three months in the fourth quarter of last year, according to the mortgage bankers.

Their unraveling means not only a string of failed lenders. Homeownership rates have slipped, and many low-income families, who dedicated meager savings toward a stake in their first homes, are facing foreclosure.

?I worry that people are overexposed to risk,? said Stuart S. Rosenthal, an economics professor at Syracuse University. ?We wouldn?t encourage people to buy risky stocks, so why do we encourage low-income families to invest in this risky asset, especially in tight markets??

But politicians have long encouraged the idea of homeownership. ?A nation of homeowners is unconquerable,? Franklin D. Roosevelt said. Promoting homeownership has been a cornerstone of President Bush?s ?ownership society.? He has declared June to be National Homeownership Month.

And government has played a substantial role in fostering homeownership ? including offering mortgage insurance and creating Fannie Mae and Freddie Mac to buy mortgages from lenders and repackage them for sale to investors.

Moreover, the government has provided an ever-growing pile of subsidies to the buyers of homes.

The mortgage interest deduction, the biggest single subsidy to homeowners, will cost the federal budget about $80 billion this year, according to the administration?s projections. Deductions for state and local property taxes will cost $15.5 billion.

Allowing homeowners to pocket tax-free much of the profit from selling their homes is expected to cost $37 billion more. Altogether, this amounts to almost 5 percent of the federal government?s total tax revenue, and almost three times HUD?s entire $42 billion budget. Now even some in Washington are questioning the soundness of pushing homeownership so broadly.

United States policies in recent years promoted the idea of homeownership too hard and at the expense of rental housing, said Representative Barney Frank, Democrat of Massachusetts. ?I wish people could own more homes,? he said in an interview yesterday. ?But I also wish I could eat and not gain weight.?

And the government?s efforts to promote homeownership are far from an unqualified success. From 2000 to 2005, homeownership rates increased significantly only among households in the top two-fifths of the income distribution, those earning more than $46,883, according to the Census Bureau?s American Community Survey.

Homeownership declined for families in the bottom two-fifths of the income scale. In the lowest fifth ? where families make less than $20,180 ? homeownership was only 42.4 percent in 2005, which was 3 percentage points less than it was 25 years earlier and 26 percentage points below the national average.

Part of the reason is the structure of government subsidies, which are worth very little to low-income families but quite a bit to families with big incomes. Those well-off families typically do not need government support to buy a home but use it to buy bigger places than they would otherwise purchase.

The mortgage interest deduction alone is worth about $21,000 to a taxpayer in the highest bracket of income with a $1 million mortgage. But for a typical family that bought, say, a $220,000 house with 20 percent down, the break is worth about $1,600.

Some economists question whether the government should be subsidizing homeownership in the first place.

Edward L. Glaeser, a professor of economics at Harvard, said he could understand government ?giving a slight push to increase homeownership, but the current incentives are much more than a slight push.?

Economic studies do suggest that homeowners try to maintain the value of their properties ? tending to their gardens and investing in their communities. But it is not clear that homeownership itself fosters these behaviors; it could be that people who invest in their communities prefer to own their own homes.

Homeownership also has a more problematic side: it locks people into an asset and ties them to a place. ?Too much homeownership might restrict mobility, and that may not be a good thing,? Professor Gyourko said.

Take Adam Gardner, a 29-year-old appraiser who bought a three-bedroom, two-bath house 20 miles north of Reno, Nev., for about $255,000 two years ago. His wife is pining to move closer to town, but with housing prices falling all around him, Mr. Gardner doubts they can pull it off. ?I?m not sure we can sell the place we are in,? Mr. Gardner said.

Some people can bear tying up much of their wealth in a house ? those with a secure, well-paid job in a stable labor market, for instance. But others might need more freedom to move: the young in pursuit of love or careers, say, or workers in declining job markets.

The American dream of homeownership may continue to grow over coming decades, if only because the population is aging and older people are more likely to own their own home. But for now, even industry insiders acknowledge that, at the very least, it is going to take a breather.

Ted J. Grose, a mortgage broker in Los Angeles, said, ?For the moment we may have plateaued.? For all the concerns about low-income families facing foreclosure, some economists believe that the development of the subprime credit market has, over all, been a boon for people with low income.

Harvey S. Rosen, a professor of economics at Princeton who was a former economic adviser to President Bush, put it this way: ?Ultimately the public policy choice is going to be whether to make it harder for people to get these loans, and just shut people out, or let people make the choice and know that sometimes they will make mistakes.?


Stephen Labaton contributed reporting from Washington.


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Although I think residential real estate has been overvalued for a number of years on the basis of owning costs vs. renting costs (i.e. the fundamentals), this guy is hardly a disinterested observer. If the subprime mortgage crisis becomes an issue for residential real estate in general and then for equities (a bit of a leap), resulting in a more broad crisis then where should one put one's money? A traditional safe haven is gold or other commodities.

Now maybe Jim Rogers is just a nice guy who doesn't want us to get hurt in what he sees as a certain scenario. He just wants us to share in and take advantage of his wisdom of going from being a stock guru to a commodities guru. Then again, as a commodities guru the flat performance recently of the commodities he doubtless holds sure could be improved by a panic....

Quote:

The Ten Faulty Consensus Views about Sub-prime and Soft-Landing?and the Ten Ugly Truths about the Coming Economic and Financial Hard Landing

http://www.rgemonitor.com/blog/roubini/183694

PS: If you have time, take a look at the paper by Rosner (Point #4)... Scary (and we have stupidity, corruption and greed not just in that segment)!

Following up on my post of 3/15 re: The Bank of Mom and Dad

http://www.nytimes.com/2007/03/18/rea ... cov.html?_r=1&oref=slogin

I agree with you FAB. Although We ended up buying out our fixed rate mortgage with a home equity loan. I am not sure what the rates for home equity loans are now, but our rate dropped more than two points and we shaved off five years. We pay less now than we did for our 15 yr. The only catch is that you have to owe less than what your house is worth. So, I would imagine that people who bought when the prices were high would not qualify, but people who bought five or so years ago might be eligible.

My final tip / opinion on this subject is that I would suggest everyone seek a LONG TERM FIXED mortgage rate. It might be a little higher right now, but in the long run you will know how much it will cost you, without any increases that could throw a spanner in the works!

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a) I hope you're right, and you could be right. There's always someone out there predicting the end of the world, and usually the world doesn't actually end.

b) On the other hand . . .

[quote]
Top investor sees U.S. property crash
Wed Mar 14, 2007 12:59PM EDT

By Elif Kaban

MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York....

...

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

...

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

I agree that anyone who needs an interest only loan to buy shouldn't. Nevertheless, some people take such a loan so that the can keep their money in other investments and maximize their interest deduction.

It is already much cheaper to rent the same place than own in JC and has been for many years. In terms of buying (or renting) I don't see how "And by the same token, Brooklyn, Queens and downtown Jersey City" follows from the Manhattan market; especially if it is due to "So many places are coops with stringent approvals, or condo buildings requiring 20% down". Those pretty clearly aren't conditions that apply in JC.

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1. Alb - you need to meet wealthier people. Made a few calls after my previous post. Two friends said they made "significant" contributions to kiddy's downpayment with the understanding that whatever equity accrues would be the kid's, i.e. it's a gift - I'd rather see you happy while I'm alive, sweetheart. This is a sweet gift - essentially a free pass on the real estate roller coaster - with giftee take all. Or lose it.

Small sample = anecdotal evidence, but still ....

2. The only time I have heard of banks lowering the rate on a fixed mortgage is when the prevailing rate goes down and you tell them you will re-up with a new bank. You would probably start from year 30 again at the new rate - essentially they would facilitate an easy re-fi. But, one always hears that the last thing a bank wants is your house, so maybe you could try if you need help.

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In a lot of cases, Mommy and Daddy are in over their heads worse than the kids.

the interest rate on a fixed rate mortgage can not be changed for the duration of the mortgage. Thats why you pay a higher rate to begin with when compared to a variable rate or 30 year when compared to a 15 year.

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I would imagine that equation applys more in places like Williamsburg than JC but you have a valid point. What I want to know though, is that if you bought at a fixed-rate mortgage, are there circumstances under which the banks are allowed to increase that "fixed" rate when times get tough?

I have great faith in the National Bank of Mommy and Daddy bailing out many of the the kids who may get in over their heads. Credit ratings are to the 21st Century what virginity was to the 19th - to be preserved at all costs. I'd be curious how many mortgages in this area were taken out by child and parent together - can anyone hazard a guess? Or, how many parents provided the downpayments which would be lost in a default.

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One thing to consider is that, assuming the experts are right and all heck will really break loose later this year, when the ARMs do a lot more adjusting, serious problems in the mortgage market could cause all sorts of other problems.

Universities, pension plans, insurance companies could all run into problems, and, if they have to sell good assets to compensate for problems with bad assets, then the prices of good assets could also fall.

So, even if it seems pretty obvious today that the real estate market is going to run into problems, that doesn't necessarily mean it will fare all that much worse than other markets.

My impression is that, when all heck breaks loose in a market, the value of really bad stuff falls an average of about two-thirds, and the value of the good stuff falls an average of about one-third. Maybe a basket of mortgage-related stocks will fall two-thirds this year and the value of the most speculative types of real estate will be down one-third to one-half in a couple of years. But maybe the stock market will also be down one-third for a few months or so.

If a clueless newbie is using funny money to speculate on condos, that newbie is probably going to be toast. But someone with a decent job who uses a 30-year fixed mortgage to buy a modest, moderately priced home that he's going to live in for awhile will probably come out fine relative to a comparable guy who rents.

Say a very bearish bear runs away from all investment markets and puts his money in CDs. Then all investment markets tank, and the bear feels proud. Then the Federal Reserve starts printing money as fast as it can, and we get hyperinflation, and the value of the dollar falls 50 percent in a couple of years. In that case, the careful bear might do as badly as the foolish condo flipper.

You wouldn't be saying that if he was telling you what you wanted to hear.

Look, I believe one should take EVERYTHING with a grain of salt, but this is a guy with quite a strong economics background.

If you'd like to cite some of these "credible financial journalists" who contradict what's being said here, go ahead.

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-- there are plenty of financial journalists with more credibility than some former assistant professor who has a blog, while working at a self-created washington "think tank," in my opinion. my main point was to be wary of wall street analyst estimates, especially out of context.

Quote:

Even if you're right about Manhattan, Brooklyn/Queens/Jersey City are hardly the same thing as Manhattan. Downtown Jersey City is full of people who stretched hard to buy condos, and I'm sure some of them have crap mortgages.

Anyone who takes an interest only loan is asking for trouble. As far as the market, at the end of the day though it mostly comes down to things like desirability of a geographic location, job opportunities, and rent vs. own costs. New York's (and JC, Brooklyn, and Queens) is benefiting from a strong job market, desirable geographic location, and high rents. If rents begin to ease down, it will be easier and cheaper to rent rather than own. But if they keep going up (and as far as I can tell, rent increases aren't slowing), people will still be able to buy. Also, and this is probably more true of Manhattan than anywhere else, the tough credentials to buy apartments is going to insulate New York from sub-prime lender problems. So many places are coops with stringent approvals, or condo buildings requiring 20% down, its a good bet that most people buying in Manhattan are not going to foreclose. And by the same token, Brooklyn, Queens and downtown Jersey City.

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I got news for you, the ovestretched are everywhere, both owner/occupiers & speculators. You could have bought a 3 family in the Heights with little down and stated income and never occupied as you were required to it because enforcement of FHA fraud is a wink.

I had a clueless 20something woman come to look at my Downtown $950 rental who said she had just bought a 2 family in Greenville as an investment with an interest only loan. To my knowledge they don't do those for "investment grade" loans, and she didn't even realize she had committed bank fraud. What a time bomb.

I'll be looking for some decent deals in a year or 2.

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Uh, the author is most decidedly NOT a journalist.

"Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. His blog, Beat the Press , features commentary on economic reporting. He received his Ph.D in economics from the University of Michigan."

Just suggesting that everyone should have a plan B for when, not if mortgage payments and interest rates do the dance of suffering!

Quote:

--- I'd take these numbers with a huge grain of salt. journalists often take these analyst estimates out of context.

and FAB I def disagree with your interest rate hike prediction - stop being an economist and bring back your previous avatar.

Asian Stocks Plunge on Fears Over U.S. Economy

By HEATHER TIMMONS and JULIA WERDIGIER
Published: March 15, 2007
NYT

NEW DELHI, March 15 ? Asian and European stock markets tumbled today, following the sharp drop in U.S. stocks on Tuesday, as concerns spread about the consequences of loose lending practices in the United States housing market.

But losses slowed on Wall Street this morning, where stocks opened the trading day mixed and then turned higher.

Most markets in Asia closed down between 2 percent and 3 percent. It was their biggest drop since the sharp declines two weeks ago that were touched off by the selloff in China on Feb. 27.

Investors sold Asian and European equities after United States stocks fell significantly on Tuesday because of concerns about home loans made to borrowers with weak credit histories. An American mortgage association said Tuesday that a record number of homes entered the foreclosure process at the end of last year.

The Dow Jones industrial average had its second-worst trading day of the year on Tuesday, finishing down 1.97 percent. The Standard & Poor?s 500-stock index fell 2.04 percent. Shares of financial companies led the way.

In early trading today, both the Dow and the S.& P. 500 opened slightly higher, fell back and then recovered. About 11 a.m., the three main indexes were just slightly into positive territory. Today in Asia, Hong Kong?s Hang Seng index closed down 2.57 percent at 18,836.93. Tokyo?s Nikkei 225 was down 2.92 percent at 16,676.89, and Standard & Poor?s Australia index dropped 2.1 percent to close at 5,741.90.

After Asia?s sharp falls, European stocks opened weak. By early afternoon trading today, Britain?s FTSE 100 index was down by 1.5 percent, at 6,070. Germany?s DAX Index was down 108, or 1.6 percent, to 6,514, and the CAC 40 Index in France dropped 78 points, or 1.4 percent, to 5,355.

Francis Lun, general manager of Fulbright Securities in Hong Kong, said that the crisis in the U.S. housing market was having a ?destructive effect on global financial markets around the world.?

After several months of smooth climbing, Asian equity investors have been treated to a bumpy ride in recent weeks. They could face even more volatility in the future, analysts say.

Asian markets have been flooded with liquidity in the past 24 months, thanks to a combination of domestic investors, hedge funds, and proprietary trading desks at banks. Many of these investors trade on the movement of market indices, exacerbating stock drops and heightening their jumps.

The shares of banks and lending institutions in Asia were hard hit today, as were companies that make consumer goods. The number of United States consumers who are late paying off their home loans is climbing steadily, particularly among borrowers with a history of credit problems, known as subprime borrowers.

Asian investors and economists predict that these consumers will stop buying new cars, electronics and other goods, hurting Asian economies.

Japan?s Chiba Bank closed down 4.31 percent to 1,022 yen today, and Sony Corp dropped 4.09 percent to 5,869 yen.

HSBC Holdings, the British bank, dropped 1.5 percent in Hong Kong to HK$135.

HSBC has been hurt by United States housing market problems after it bought Household International in 2003, a United States lender that specializes in loans to borrowers with bad credit. On Feb. 7, HSBC shocked investors when it said it was setting aside $1.76 billion to cover potential mortgage losses in America, 20 percent more than analysts estimated.The drumbeat of bad consumer news from the United States, where more than 1 in 10 subprime home borrowers are late paying back their loans, is having an effect on investors? appetite for risky stocks, analysts say.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Fat-ass tip;

Not wanting to be pessimistic, but I hope people who have a mortgage that have 'stretched' them a little from time to time, have a plan B to making bank payments!

And if your selling, do it now. If your buying wait till Christmas and the New Year.

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Condo flipping you mean? Absolutely. After all, you should only risk what you can afford to lose - and you can lose quite a lot doing that.

That should have said "1.1 million against 8 million"

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I think this will have a direct effect on me, because my spouse is self-employed and has big ups and downs in income.

On the other hand, if prices come down, that could eventually help us.

Another issue: I think it would be good to see what percentage of subprime loans and other non-vanilla loans went to people who used the loans to buy vacation homes or investment properties. It seems to me that people are probably a lot more likely to default on mortgages for investment homes than for their primary residences.

Suppose that most people who used non-vanilla mortgages to buy in the Heights are owner occupiers and most who used those mortgages to buy in Paulus Hook are investor condo flippers who live in Manhattan.

If that scenario were true, then it could be that default rates on similar types of wacky mortgages will go a lot higher in Paulus Hook than in the Heights.

If, on the other hand, I'm wrong, and low-income/moderate-income owner occupiers have higher default rates than the flippers, then Paulus Hook might fare well and the Heights might suffer more.

A 2 or 3% increase in mortgage rates is still on the cards in my opinion. This will happen in the next 2 years and politicians will say its the recession we needed to have. Government spending on defence has increased by billions, (To fight insurgents that have no tanks, subs, aircraft carriers, thousands of troops and special weapons and they are kicking our ass and we might have to turn tail) and will continue by the fear generated which has an expensive appetite. All I suggest, is save those dimes for a rainy day.

Brings in a factor I hadn't thought about before - the sheer number of people who could wind up excluded from the homebuying market in relation to the total number of home sales. 1.1 million against 5 million is quite a lot. Granted, most of those excluded will be on the low end of the market, and some of you might argue that those people aren't buying in Manhattan or Jersey City. Still, I imagine it will have some impact. Jersey City certainly has its share of buyers who are stretching their finances to the max for that condo meal ticket.

One more perspective:

Safe Ground in a Housing Market Meltdown?
By Dean Baker
t r u t h o u t | Columnist

Wednesday 14 March 2007

As reports of problems in the mortgage market build, the number of people who view a collapse of the housing market as a serious possibility is growing rapidly. At the moment, the surge in defaults is taking place primarily in the sub-prime market, which is composed of borrowers who have poor credit histories. However, the problems are likely to affect the broader housing market and the economy as a whole before the end of the year.

The basic story in the sub-prime market is straightforward. Mortgage bankers were anxious to sell mortgages even when they knew that the borrowers could not make the payments, because they derive their income from selling the mortgage, not holding it. Hundreds of thousands of low- and moderate-income homebuyers were lured into buying homes by discounted "teaser" rates on mortgages. These teaser rates would reset to market rates, typically after three years, at which time many borrowers would be unable to make their monthly payments.

As long as house prices keep rising, everything works fine. Homeowners can always borrow against their equity to make their monthly payments, or they can sell their home, pay off the mortgage and pocket whatever gains they may have.

However, in 2006, supply finally outpaced demand, and home prices began falling. This led to a huge surge in defaults in the sub-prime market. As a result, some sub-prime lenders have gone bankrupt, and many others are leaving the business or radically curtailing their lending. The same thing is happening in the Alt-A market, which consists of borrowers with somewhat better credit ratings, but still below prime.

The housing optimists claim that the problems in the mortgage industry will be restricted to these sectors and will not spread to the larger prime market. However, the sub-prime and Alt-A markets together accounted for 40 percent of the market in 2005. If lending in these sectors is sharply curtailed, then a huge portion of potential homebuyers will be excluded from the market. According to an analysis from the Bear Stearns investment bank as many as 1.1 million potential homebuyers may be excluded from the market in 2007 because of tighter credit conditions.

While home sales did cross 8 million in 2005, as recently as 1995 the number of homes sold in a year was under 5 million. There is no way that 1.1 million potential buyers, or even half this number, can be excluded from the housing market without a substantial impact on house prices.

It is also important to remember that this credit tightening is occurring against a backdrop in which house prices are already falling. The median house price nationwide fell by more than three percent over the last year. On the supply side, the inventory of unsold homes is up by more than twenty percent from last year. In addition, a record high percentage of these homes are vacant. The vacancy rate of ownership units is more than forty percent higher than in any prior housing slump.

This describes a scenario of more downward pressure on prices, which will lead to more defaults and foreclosures. This in turn will lead to further tightening of credit and more homes being subject to distress sales through foreclosure.

All the experts who used to insist that this scenario could never happen are now insisting that the scenario does not describe the situation in their favored housing markets. While each local market does have its own dynamic, the run-up in housing prices was nationwide. Not everywhere is going to experience the same decline, but there will be few, if any, areas that escape unscathed. The fact that a particular metropolitan area has a sound economy with a healthy labor market should offer little solace - that doesn't mean that house prices are not overvalued.

The tech bubble in the stock market provides an appropriate analogy. While the largest overvaluations were in the tech sector and especially in the dotcoms, virtually all stocks had become overvalued. As a result, there were very few stocks that did not experience a sharp price decline from 2000-2002. The fact that a company had strong growth and solid profits didn't matter - overvalued stocks still fall when a stock bubble collapses. Similarly, overvalued houses will fall in price when the housing bubble collapses.

The vast majority of metropolitan areas are likely to see a fall in housing prices over the next few years, with the biggest declines likely occurring in the areas that had the largest run-ups (largely the two coasts). Few people will be insulated from the impact, just as very few stockholders were unaffected by the 2000-2002 crash. Don't let the happy-talk real estate peddlers tell you otherwise.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.