One of the unfun side effects of the bubble is it's effect on driving rents up too. It's not just houses that become unaffordable but apartments too.

I think the "burst" will be a lot less in places like NYC and SF, since there is high demand for limited space.

True, that. But it's still more than a little nerve-wracking to be setting a closing date when every article about housing is screaming "And whatever you do, DON'T BUY A HOUSE THIS YEAR!"

One of the unfun side effects of the bubble is it's effect on driving rents up too. It's not just houses that become unaffordable but apartments too.

Very much this. The prices for apartments out here is scare-eee. When Joe and I move, our rent is going to go up by at least $400. Yikes!

In all honesty I do not believe that professional economists fully understand the economy.

I don't know why economists are specially underinformed compared to any other professional academic. Psychologists don't fully understand why people behave the way they do. Mathematicians notoriously deal with thorny unsolved problems. Obviously there's a huge debate going on in physics right now as to what kind of evidence we need to base theories on. The mystery IS the point.

After expressing this opinion in my first micro-econ class in grad school, the professor (who is one of your colleagues, I think, flea, so I won't mention his name) went out of his way to heap scorn and derision on me.

I have to say, it sounds like he was responding in kind, unless there was some compelling reason to heap scorn and derision upon the man's chosen profession. In his class.

I was told that the bubble would burst less hard in places with good employment. And that LA was one of those places. However, our bubble is stretched so artificially thin--it can't sustain itself.

As a non-owner who wonders where I'm supposed to get over half a million to buy a tiny home in my neighbourhood, I'm reasonably unsympathetic to the disappearance of paper wealth. But, damn, it must have been seductive to get in on the ground floor, and I'm sure people were busier checking what floor they were on that noting how many floors were left to go.

whenever I open a magazine I can usually point to exactly where photos have been retouched

From what I've been lead to believe, either your hand is tired from pointing or you don't read many magazines. You know those riders that bands have for their venues? I remember a TT poster who worked for, I think, Teen People. The celebs come with their own riders. So if it's not a candid (and maybe even then), J-Lo has had exactly the same sort of work done on her photos every single time.

It's like my boob-job curiosity. If Salma's breasts aren't real, why doesn't everyone go to her surgeon? Even if Salma's breasts are real, maybe there still are many people wandering around with great fake breasts. And what I think of as the fake boob look is just the obvious boob job look.

They may be among us.

I think any subject that deals with human behavior is going to be fuzzy by definition -- you can only predict what people will do with their money up to a point, because people aren't always rational (or even predictably irrational).

Sorry to interrupt this discussion, but I only have a second due to lots of actual (yuck) work to do and I have to post a link to the coolest little film ever. [link]

watch, marvel, and enjoy.

Grad school is full of scorn and derision, in all directions. It's sort of its raison d'etre.

I think where economics differs as a field from the academic professions bon bon mentioned is that the 15-second sound bite on topics that directly affect people's lives (like the housing market) does not occur in fields like theoretical physics and math, and not much in psychology except Dr. Phil. I am sure many academic economists fully admit that much of their work is theoretical, but they don't get on TV much.

Except you could argue that houses had become overvalued, and the drop in housing prices is just forcing people to confront reality. All this wealth was created on paper and people borrowed against it. And now a lot of this wealth is gong away. So there really wasn't as much "real" wealth there in the first place....

But all that debt (created by the borrowing) is still out there, waiting to be repaid. So there's an effect on real wealth as well, because people will have to repay the principal (plus interest) borrowed earlier.

Another difference between this market drop and prior market drops is the rise in alternative mortgages. People who've been paying interest-only or teaser interest rates are going to be facing big jumps in their payments when they have to start repaying principal or paying more normal interest rates. And most likely, some of them won't be able to make those payments.