It will vary depending on the region you're from, but housing would have to correct between 20-40% in order to come back in line with historical valuations relative to rents and income (or incomes and rents would have to increase by that much, ha ha ha!)
However, some crafty soul has expanded Robert Shiller's now-famous chart to forecast when and how the housing crash will occur. He forecasts a bottoming out in 2011 and a price drop of 43.5%.
I wouldn't be quite that pessimistic, but it just amazes me how a bunch of yahoo bloggers in their spare time were able to predict this happening long before hoity, toity, big time, and much higher paid Wall Street and banking hot shots did. Similar to how some unknown bloggers brought down Dan Rather. In both instances though I think there was a bias or incentive to ignore reality.
In the case of Dan Rather, it was simply political bias that blinded the entirety of CBS.
But this housing bubble, it was much worse and much more detrimental to the economy and American society; bankers had the incentive to keep loaning out money because bankers are primarily paid in commission, not salary. Therefore it didn't matter whether the loan was good or not, as long as it got through the door, commissions got paid and bankers were happy. Management was happy as sales were up and growing at a record clip. But what amazes me is how wide spread this turning-the-eye to bad loans must have been to even have Wall Street investment banks who bought portfolios of subprime loans didn't pick up on the problems of these subprime lenders that are now bankrupt. And now, that the entire financial services industry has turned a blind eye to poor credit, they have allowed a large (arguably the largest) financial bubble in the history of the world build up.
2011 may not be too far off.
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