I'm... a little unclear on how economics works, but, aren't those free-falling prices the ones that were skyrocketing for no reason 3-4 years ago?

Yep.

So, basically, it's the totally predictable crash that brings prices back close to what they were?

Unless you managed to convince yourself that prices would continue to rise. Which it seems like most home buyers in recent years did. I dunno - it's the weird psychology of market bubbles, where people tell each other, "The usual rules no longer apply."

I think my definition would definitely stay below six figures. On the other hand, a living wage in, say, my town now has NOTHING to do with a living wage in New York, so that has to be considered, and I also think family size should be considered. So I might consider $150,000 for a family of six middle-class in New York, whereas here it'd be, well, high on the hog.

Obama's may be statistically reasonable, but where you live would really throws wrench into his number.

Crap, my sentence really sucked.

Obama's may be statistically reasonable, but where you live really throws a wrench into his numbers.

Oh, check this graph out: [link]

It shows housing prices in constant dollars (i.e. adjusted for inflation) from 1890 to present. It makes it clear that starting in 2000, housing prices got seriously out of whack.....

It makes it clear that starting in 2000, housing prices got seriously out of whack.....

Yeah, from 96-00, things were pretty much on par with the two booms in the 70s and 80s, and then it just kept on going.

According to the Irvine Housing Blog that I read occasionally (a really excellent look at the housing bubble, especially in southern CA--Irvine, CA is at the heart of said bubble and, sadly, has one of the highest rates of foreclosures in the country), that post-2000 upswing is mostly due to the change in mortgages shifting from 20% down fixed rate 30-year ones to zero down, negative amortization, and second mortgages for the 20% downpayment. This opened up the housing market to those who couldn't afford to save the 20% downpayment.

This is also reflected in the drop in Americans' savings rates.

Sometimes I fear we're heading for a perfect storm of... economic badness. The subprime fiasco, collapse of housing prices, skyrocketing energy costs, huge US budget and trade deficits and the resulting falling value of the dollar, consumers cutting their spending way back out of fear for their jobs....

And here's a graph comparing the U.S. housing bubble to the Japanese housing bubble of the 80s. The Japanese market peaked in 1990, and it took (or maybe still is taking) more than 15 years to revert to the mean.

[link]

Basically the Fed and the national government rolled the dice on the housing market keeping the economy going post tech boom crash and 9/11, by enacting a series of policies and preventing the states to enact contrary policies.

At the beginning it was a half-decent bet, but by 2003-4 it was definitely turning into a bubble, but there was no one willing to take the risk unwinding it. By 2006-7 virtually all of Wall Street knew that it was a bubble, but as long as everyone pretended it wasn't, well, the bills wouldn't come due.

Eventually someone had to panic and the whole thing started to fall apart like Jenga...

I was reading somewhere last night (economic blog--Beat the Press, possibly? don't remember) that, even if everyone spent their stimulus check on a purchase, it won't do anything for the economy as a whole. What will revitalize it will be an increase in exports, and the only way to increase exports to a significant level is to have the dollar continue dropping like a rock.

The problem that I see with this argument is that we're then relying on the world economy being able to afford to prop up our own. What happens if international economies are also dropping (the US housing market isn't the only one tanking), and everyone curtails their spending?

Then everyone is screwed.