Sofa retailers have been hammered. Anyone involved in selling ‘big ticket’ items, such as white goods (fridges, freezers, etc), has seen their share price tank too. Meanwhile, Homebase owner Home Retail Group (LON:HOME) warned that like-for-like sales at the home improvement chain had fallen 12% in the 13 weeks to May 31st.

But it’s also claiming some surprising victims. Carphone Warehouse (LON:CPW) took a pounding yesterday as it warned that broadband growth would be slower than it expected this year. Why? Because if you’re not moving house, there’s usually no impetus to go to all the hassle of changing your broadband provider.

But the property crash is far from being the only thing consumers have to worry about…

The house price boom has meant good times for retailers. Homeowners have been borrowing more money against the rising value of their homes (mortgage equity withdrawal), and then spending it on the high street.

But now that house prices are falling, the amount of equity left to withdraw is falling sharply. On top of this, lenders are now demanding that remortgagers have as much equity as possible in their homes, if they want to get decent rates on their home loans.

This can only be bad for the high street. Mortgage equity withdrawal fell from £13.7bn in the last quarter of 2006 to £7bn in the last quarter of 2007. Bear in mind that house price growth hadn’t even turned negative by that point. So MEW for the first half of this year will plunge again.

It’s not just about the amount of money people can borrow against their homes. It’s about confidence as well. Anyone who owns a home – even those with a reasonable equity cushion – is thinking: “how bad is this going to get? I’d better build up some savings, or pay a bit more towards the mortgage.”

And anyone who at some point in the last decade has said: “my home is my pension”, is now terrified that they will be spending their dotage living on baked beans and sleeping in soup kitchens. Suddenly that new widescreen plasma TV seems very much a luxury, not a necessity.

And they’re right to be worried. As Phil Dorgan of Panmure Gordon tells The Times: “The British consumer is more geared to house prices than almost any consumer in the world. There’s a high level of consumer debt as a proportion of GDP – if home prices fall it absolutely affects consumer spending and if we move into negative equity it will get even worse.”

All bad news. Hopefully if you’re a regular reader, you won’t be invested in any of the consumer-facing sectors (such as retailers) that have been battered in recent weeks. But even if you are, it’s not too late to get out – there’s plenty of scope for further falls.

Because, it’s not just about falling house prices anymore. Property prices may be tumbling, but the cost of everything else is going up. And consumers are very aware of it. The Bank of England’s quarterly inflation survey showed that the average consumer believes that annual inflation was at 4.9% in May. In February, they thought it was 3.9%. The Retail Price Index (RPI) shows that inflation is actually at 4.2%. And the official figure – the Consumer Price Index, which the Bank is meant to keep at 2% – is only at 3% so far.

This is a big worry for the Bank. For a start, it’s the highest that consumers have perceived inflation since it started conducting the survey in 1999. That’s no surprise really – the past nine years have seen China swamp the world with cheap goods, offsetting the central banks swamping the world with cheap money, so we haven’t seen inflation in all the places we’d normally expect to see it.

But now that we are seeing inflation rear its ugly head, the problem is that consumers will start to want more money from employers to compensate. Now the fact that the economy is heading into a downturn will offset some of that pressure – it’s not that easy to get a pay rise if you’ve got the threat of redundancy hanging over you – but it doesn’t simply mean it will go away.

The unions for one thing, have got their teeth into the idea, and not just in the public sector. The strike by drivers for oil giant Shell just goes to show what happens when you have a combination of weak government, a collapsing economy, and workers in positions of power.

But even if wage inflation doesn’t become an issue, the perception that life is becoming more expensive is even more bad news for the high street. If people are increasingly worried about stockpiling the necessities of life before they become even more costly, then they won’t be keeping money over to pay for luxuries.

That means all those second-line consumer-dependent stocks are also heading for trouble. The travel industry? Forget about it. This idea that they will somehow resist the downturn is laughable. Hotels, tour operators, airlines – I’d sell them all.

When the banking sector ran into trouble last year, the papers ran page after page of articles talking about how banks were an undervalued bet for ‘brave contrarians.’ All those ‘brave contrarians’ who bought the hype were then faced with collapsing rights issues and soaring mortgage arrears.

Expect to see similar articles about retail stocks. Just remember what happened with the banks, and ignore them.

At some point in the future, things will get better. At some point in the future, it’ll be time to go bargain hunting. But that’s a long way off from here.

Turning to the wider markets…

Overnight in Asia, Japanese stocks rallied 0.6% as the Nikkei 225 added 85 points to end at 13973, but in Hong Kong, the Hang Seng declined 0.8% to 22833.

Brent spot was trading this morning at $136, while spot Gold was at $870. Silver was trading at $16.52 and Platinum was at $2038.

In the forex markets today, sterling was trading at 1.9435 against the US dollar and 126.17 against the euro. The dollar stood at 0.6491 against the euro and 107.95 against the Japanese yen.

Source: The Stock Market Sectors You Should Sell Out of Right Now

Britain is “uniquely at risk”, mainly because the Government has spent too much during the good times. The country faces house price falls of as much as 10%; while unemployment will rise to a ten-year high, with 200,000 people losing their jobs over the next 18 months.

Nice to see the world’s economic institutions are catching up to reality. But the OECD is still too optimistic…

The OECD has warned that the UK is in big trouble. It reckons the Bank of England needs to cut interest rates to 4.25%, but says it must hold off until next year because of inflation risks. The Bank will be announcing its decision on interest rates later today, and is widely expected to keep them on hold at 5%.

Why the government should be spending more right now but can’t

It also says that the Government probably shouldn’t be pulling in the reins in terms of public spending. The idea is that when times get hard, the Government spends a bit more to keep the economy ticking over until the private sector gets back on its feet.

But of course, this isn’t really possible, because the Government has bled the country dry during the good times. Gordon Brown has taken money that would once have gone into private sector pensions (which would have enabled more of our citizens to take care of themselves in the future, rather than relying on the state), borrowed a whole load more, and then sprayed it all over the public sector to almost no apparent effect at all (if you still have trouble believing this, read Squandered by David Craig – do remember to take your blood pressure pills first though).

As the OECD puts it, a little less bluntly: “The Government’s options have been limited by excessively loose fiscal policy in past years when economic growth was strong.”

It’s unusually tough talking from this type of body. Of course, the Treasury said the OECD was wrong. “The UK economy remains strong, and is well-placed to get through these global problems.” All I can say is, it’s little wonder that British consumer confidence is at a record-low ebb.

Those in power – both in the public and private sectors – of our key economic institutions seem to have one reaction to the credit bubble popping. That’s to stick their fingers in their ears and sing “la-la-la, I can’t hear you.” If it’s not Alistair Darling blethering about the UK being “well-placed”, then it’s any number of banking chief executives effectively saying: “Everything’s fine, our lending book is top notch, and even though the housing market is in meltdown, we will somehow be the one bank that can get through it unscathed. By the way, can any of you shareholders spare another few billion? No, don’t form a queue, people might get the wrong idea…”

A 10% fall in house prices? We should be so lucky

The unfortunate truth is that in fact, the OECD’s predictions that house prices could fall by as much as 10%, and that unemployment will rise by just 200,000, still seem quite tame.

Plenty of mainstream forecasters are now predicting falls of at least 10%. And during the 1990s recession, unemployment actually rose by closer to one million. And despite the increasingly desperate claims of the optimists, it is looking more and more as though this downturn could be much worse than the one in the 1990s.

One of the reasons behind yesterday’s 87-point drop in the FTSE 100 was a particularly worrying piece of economic data. The Chartered Institute for Purchasing and Supply released its services sector survey for May. The data showed that the sector shrunk for the first time in more than five years.

This is bad news. The service sector accounts for about three-quarters of Britain’s economic growth. But even worse was the news that employment saw its biggest contraction since records began in 1996, “with hotels and restaurant staff bearing the biggest brunt,” reports Edmund Conway in The Telegraph. And yet prices charged continue to rise. Companies are also more pessimistic than at any time since records began.

And all of this is already happening when we’re still at the start of the fall-out from the housing crisis – as the Halifax reported this morning (see below), prices are now down 3.8% year-on-year. The number of people in negative equity is creeping higher by the day.

It doesn’t matter what the Bank does today, or how many warnings the OECD gives out. The British economy is headed for recession. The only question is – how bad will it get?

Turning to the wider markets…

US stocks were mixed, with warnings that Moody’s may downgrade two major bond insurers (Ambac and MBIA) hanging over the market. The Dow Jones Industrial Average fell 12 points to 12,390. The wider S&P 500 was flat at 1,377, while the tech-heavy Nasdaq Composite gained 22 points to 2,503.

In Asia, the Nikkei 225 fell 0.7% to close at 14,328, as falling crude oil prices hit commodity trading groups. In Hong Kong, the Hang Seng climbed 0.2% to 24,161.

Brent spot was lower again this morning, trading at $121.02, with crude in New York trading at $122.25. Spot gold was at $875 an ounce. Silver was trading at $16.67 and Platinum was at $1,987.

Turning to forex, sterling was trading at 1.9515 against the dollar, and at 1.2636 against the euro. The dollar was last trading at 0.6478 against the euro and 105.87 against the Japanese yen.

And this morning, the Halifax reports that house prices fell by 3.8% in May compared to the same month last year. That’s the biggest annual drop since April 1993, when prices fell 2.4%.

Source: Why the Bank of England Can’t Save Britain from Recession

But we have to remember that the credit crunch did not start in the banking sector. It started with housing.

After nine success quarters of expansion, the UK economy finally showed weakness in 2008.

After a twelve year bull market in housing, where average prices were £61,115 in 1995 to £198,664 in 2007, an increase of 225% we are finally seeing the housing market hit the skids.

Trend watchers would say about bloody time. ‘The climb in property was due to pop,’ clever chartists would tell you. The bull run was in its third phase, according to Dow Theory. This is where all newsflow was positive and the dumb money was piling into the investment. A sudden reversal in fortunes was, as it invariably is, on the cards.

But this is not the stock market, this is the property market and property has its own theories.

It’s called HPA, or house price affordability.

What it measures is the average earnings of UK consumers against the average price of a house. It is literally a price-to-earnings ratio for property assets.

Just like the dot-com stocks that looked overvalued in 2000, house prices are looking equally overheated today on the basis of fundamental value.

Average wages are, according to Capital Economics, approximately £30,000 a year.

Average house prices are £178,555.

178,555 / 30,000 = 6.

6 is bad. 6 is much higher than the long-term average 3.7.

Problem is that it’s even worse now. BusinessWeek claim that today the HPA ratio is now 11.

11 times your salary!? Probably overzealous from Business Week, but still pretty dire. Never fear though, as we’re alright as long as the cost of taking out mortgages is cheap.

D’oh!

The cost of borrowing has skyrocketed since the credit crunch. The nationalisations, share price capitulations and never-ending writedowns have a pretty effective way of killing the mood.

Banks have gone from lending to each other at a low of 3.4% in 2003 to around 5.8% today, even nearing 7% in late 2007.

So the banks don’t want to lend to each other, and if they do, they do so at a big premium.

So, a house buyer is between a rock and a hard place.

Houses are too expensive and debt is too expensive. Demand and supply are both, therefore, a bit limp.

If houses are too expensive you need to borrow a lot of money. If the amount of money you are borrowing is set at too costly a rate, you’re only likely to take the loan if you believe house prices are still going up.

And this is where sentiment comes into the mix.

“The Memetic Theory of House Prices”

Richard Dawkins, the famous atheist, has a theory explaining sentiment in the housing (or any) market that is very well presented, funnily enough, by the End Poverty pressure group.

“[Memes] are anything, any message sent from one person to another. It spreads much like a virus until it reaches the whole of society and forms a consensus.

“In the housing market, memes propagate of the overall state of the market. System-wide memes say whether the market is thriving or in recession spread. At times the housing market is in boom, thus the boom meme is dominant. At other times it is the slump meme that forms the consensus.”

What this is saying is house prices rose because people believed they would rise. Now, we can see, they are falling, in part, because people believe they would fall.

Now it’s not all mania and panic, there are fundamental justifications both on the up- and down-side, but it is certainly part of the process and that part is sentiment.

You have only to look at the doom and gloom headlines being generated by the mainstream press to see the pendulum has swung decisively against property.

So, housing has lost the hearts and minds. Every part of every framework, from the mathematical to the touchy-feely is shouting out GO SHORT HOUSING!

How Low Will It Go?

OK. Now we’ve got the basics we can produce an estimate.

Firstly, looking at house price affordability, our housing P/E ratio. The long-term average is 3.7.

If prices are going to ‘revert to the mean’ this implies a fall of 30%. Why not more? Because year-on-year earnings growth is also thrown into the mix. So, on fundamental grounds, we’ve got good reason to be bearish on UK property.

Then we factor in the popular sentiment, or ‘memetic’ momentum.

This could swing things even further as a market in the throes of panic is likely to over-sell and push prices as artificially low as it pushed things artificially high.

However, two considerations.

Markets do not always fall back to their historic averages. Trends can shift and that means that the ‘crash’ could be less than our antiquated metrics allow us to anticipate.

Also, sentiment can change. If popular opinion goes back the other way, and everyone decides that the 5% or so of price decline is quite enough it may prompt a turnaround, an artificial turnaround, but something that will re-light the fire that is imbedded in every British citizen.

A belief that amuses many of our foreign neighbours.

It is the belief that owning a house is a god-given right. The inbuilt desire to buy houses has not completely gone away, and once the press find a new theme that fire can be rekindled. This may be the x-factor that is shifting the trend upwards.

The 30% call is complex, there are so many variables and considerations in housing that can shift our projections a few ticks higher or a few ticks lower. In either case, our position is clear. Go short housing… any way you cut it, the market looks broke.

Theo Casey

Source: House Price Affordability

Flush with British pounds at a 27-year high against the dollar, they poured something like $4.6bn into US real estate, according to data from the Association of International Property Professionals (AIPP).

Now the pound’s slipped back, but so too have Florida house prices. So cue Fannie Mae to target British holiday-makers.

“Homes Available in USA,” says a Google advert – visible only to web surfers inside the UK it would seem – from the US-government backed mortgage agency.

If you’re inside the fifty states, most likely you won’t find it. Which would only be tactful.

“Affordable housing opportunities,” says the ad. “Find a holiday home in America.”

There are plenty of “holiday homes” to choose from in the USA right now, not least on Fannie Mae’s books. Single family homes in Miami, Florida, for example, start at just $45,000. The last time a first-time buyer in Britain could snap up a starter home for that price – around £23,000 – was 1991.

Even then they had to buy far outside the “hot spots” of London and the South-East. At least 150 miles away, in fact. The last reported sighting of a London home costing less than $50,000 equivalent was back in 1985. Today the average apartment in the UK capital costs six times as much.

But hey, that’s inflation for you! And flicking through the huge range of cut-price real estate now on sale at Fannie Mae today, three things about the decade-long inflation in real estate prices now imploding on both sides of the Atlantic continue to amaze us here at BullionVault.

First, the sheer volume of foreclosures sweeping the former hot spots of America. Second, the size of house price “discounts” about to hit the United Kingdom. And third, how-in-the-hell anyone ever thought subprime mortgages sounded like a good idea.

As the chart above shows – courtesy of Janet Yellen of the San Francisco Federal Reserve – late payment rates on subprime US mortgages stayed above 9% even when the cost of borrowing sank to a four-decade low (and stayed there) between 2002 and 2005.

Teaser rates of just 1% interest, in other words, left almost one-in-ten subprime borrowers unable to meet their monthly mortgage bills. So the profits assumed by “resetting” those rates to 7% and above two years down the line were never going to show up.

As in not ever. Any bank day-dreaming otherwise deserves euthanasia, let alone bankruptcy.

What they’re getting instead, however, is a fresh dose of money from the Fed. The US central bank is actively creating a market in mortgage bonds, accepting these illiquid assets as collateral against loans of highly liquid US Treasury bonds.

Will the money thus released to the banks find its way back into US house prices? Whatever happens on your street in 2008, subprime lending as a financial product is dead – if not for good, then at least for now. Issuance of residential mortgage-backed bonds collapsed by 95% during the first three months of this year, according to data from SIFMA, the securities association. The futures market expects a further 25% drop in US house prices, notes Janet Yellen of the Fed, based off the price for Case-Shiller index contracts.

And now the UK property crash has finally turned up as well – a mere three years after everyone thought it would – the chances of British holiday-makers supporting the Florida real estate market look pretty slim too, despite Fannie Mae’s advertising dollars.

Source: Turning Sub-Prime Misery Into Vacation Homes

So anyone arguing that we can’t have a recession or a house price crash because employment is high, is simply wrong.

As if to prove it, now JP Morgan has doubled its previous estimate for City job losses to 40,000. That would be 5% of all City staff, the biggest cull since the dot-com bubble burst.

As The Times puts it – ‘that’s 12 empty Gherkins’…

So far roughly 2,500 City jobs have been cut, reports The Times, so if JP Morgan’s 40,000 estimate is correct, there’s a lot more pain to come. And not just in the City. Discount retailer, Ethel Austin, went to the wall yesterday, which could see a large number of the group’s 2,800 staff laid off depending on the outcome of a rescue deal.

600,000 people are facing bankruptcy

Certainly, there’s no sign of the credit crunch easing yet. If Gordon Brown hoped he could say anything to make a difference when he met banking heads at Downing Street yesterday, he’d have been sorely disappointed this morning. Halifax is raising the rate on its two-year tracker – it’ll now track at 1.99% above the base rate, from 1.49%.

Meanwhile, a report by TDX Group suggested that around 600,000 people might end up facing bankruptcy or taking out an IVA (bankruptcy-lite, as it’s sometimes called), because they won’t be able to roll over their debts. TDX says that’s about double the number that took such action last year. The group based its findings on the fact that around 400,000 people remortgaged or took out new debts to pay off old loans last year – with tighter credit conditions, the same escape route won’t be open this year.

Britain’s not the only place feeling the squeeze. The first big domino to topple, the US, still sees no bottom in sight for its collapsing housing market. The number of homes entering foreclosure proceedings in March more than doubled year-on-year, to nearly 235,000. About 40% of foreclosures result in actual repossession.

Spain is feeling the squeeze

And even in Europe, car manufacturers saw their worst month in four years, with sales in western Europe falling 10.4% in March, with Spain particularly bad, down 28.2%. This was partly down to changes in tax rules on scrapping older cars, but the country is also in serious trouble due to the end of its construction boom.

Earlier this week, data showed that Spanish service sector confidence was at its lowest on record, while activity in the sector is contracting, according to the latest purchasing managers’ index. Sales of ‘big-ticket’ items such as washing machines fell 32% last month.

It goes to show just how much consumer activity comes to rely on house prices in countries that have experienced property bubbles. However, while things look bad for Spain, the country does have a few advantages. For one thing, its government has been pretty careful in recent years – the country still runs a budget surplus, and so has been able to promise large spending on public works to help economic activity. It’s also dishing out a €400 tax rebate in July.

Then there’s the fact that Spain’s banks have largely avoided the problems associated with off-balance sheet vehicles and creative finance which have plagued many other countries. As William Underhill points out in Newsweek, this isn’t necessarily because they are any better run. It’s because in Spain, tighter regulations meant that banks couldn’t keep this sort of stuff off their balance sheets, and have thus stuck to older-fashioned ways of making money.

As Willem Buiter of the London School of Economics puts it: “there’s some advantage to being slow when the speedy crowd all go off the cliff together.”

The outlook for the UK is far worse

Of course, the Spanish banks will have a hard enough time with consumer spending dropping off and all those home loans turning bad. But anyone who thinks that Spain is in trouble should be far more worried about the UK. Our banks are much more exposed to the global credit crisis; our government has spent itself into a corner; and our housing market is about to go the same way as Spain’s.

With the euro at record levels against the pound, don’t be surprised if the Spanish start looking for holiday homes over here long before we’ve got enough money to start picking up bargains on the Costa del Sol again.

By the way, just before I go, I wanted to let you know about a special offer for Money Morning readers. Amid all this upheaval, it’s hard to know what to invest in, but you should certainly pick up plenty of ideas at the Master Investor 2008 investment show. Speakers include Pizza Express entrepreneur Luke Johnson, Nigel Wray, Mark Slater, fund manager Jim Mellon, as well as share tipster Tom Winnifrith and short-seller Evil Knievil AKA Simon Cawkwell, while executives from more than 100 growth companies will also be attending.

The organisers are offering Money Morning readers a 70% discount (£14.99 against a price of £49.99) on the event, which takes place on Saturday 26th April from 9am to 5:30pm at London’s Business Design Centre in Islington. Simply call 020 7562 3372 and quote “Money Morning” or book via www.masterinvestor.co.uk, using the discount code SS8.

Turning to the wider markets…

The NAR pending home pending home sales index, a leading indicator of existing home sales, dropped 1.9% in February. The index is down 21.4% from the February 2007 level.

There has been plenty of shrill calls for government to intervene in the housing crisis, but what can – or should – government do?

“All through the boom, the bulls were claiming that the super-sized house price growth was based on fundamentals, and had nothing to do with slack lending practices,” says John Stepek in MoneyWeek.

“If they’re right, then prices shouldn’t fall very far before the fundamentals pick them back up again. If they were wrong, then house price gains were a bubble based on rampant speculation. Those bubbles need to be allowed to pop, so that people don’t keep throwing good money after bad.

“Of course, the reality is that many of the bulls knew this was a bubble. They just thought it was too big to blow. More than a few people used to argue that “the government will never let the housing boom end. It’s too important to voters.

“They will soon be reminded that there are few things less worthy of your faith than governments. For all its efforts, the Federal Reserve still hasn’t prevented US house prices from diving by more than 10%. Our leaders can’t hope to do any better.”

As The Times points out, if you want to get on the property ladder now, you’ll have to raise nearly £7,500 for the deposit on the average house price of £148,000. That’s not to mention the big arrangement fee for the mortgage, and the near-£1,500 in stamp duty.

Anyone who thinks this market is heading for a ‘soft’ landing is delusional…

An opportunity for banks

Banks have taken a serious dent to their confidence over the past nine months or so. However, they’re rapidly discovering the bright side to the credit crunch – it’s the perfect opportunity to rebuild their profit margins.

As James Ferguson recently pointed out in his investment newsletter, Model Investor, mortgage lenders have been surviving on absolutely tiny profit margins, as they competed to offer the cheapest deals to consumers. That need to compete has gone now – nobody wants anything but the safest business.

So that means they can feel free to jack up their profit margins. And that in turn means that the impact of the credit crunch is being magnified when it comes to consumers.

Here’s why. When money was free and easy, banks would borrow money at say 5.0%, then lend it out at little more than that – say 5.2%. They had to – with around 15,000 mortgage products on the market, buyers had plenty of other options open to them.

But now that mortgages are harder to come by, people can’t be fussy. They’re desperate to find one bank willing to lend to them, let alone a selection. So even though it’s costing banks more to borrow money, they’re able to widen their profit margins substantially – say to more like 1% or more.

That’s not to mention the rapid rise in arrangement fees. I read at the weekend that one lender is now charging arrangement fees to take out its standard variable rate mortgage, something that was unheard of up until now.

Some commentators have been talking of how this is a return to a more ‘normal’ mortgage market, and it is. The days of easy credit were abnormally slack, and caused abnormal house price growth, which in turn fed upon itself, encouraging more people to make bad investment decisions, and more builders to build inappropriate flats in city centres.

Credit will become ridiculously expensive

The housing market is now ‘reverting to the mean’ after a long period of defying gravity. The trouble is, when things fall after rising for so long, they don’t just stop when they return to the historical average. They overshoot on the way down.

So just as credit was ridiculously cheap for a while, so it will become ridiculously expensive. And just as house prices were ridiculously overvalued, so one day, they will become ridiculously undervalued.

It’s hard to say exactly how far that process will go. But you can be sure that the level of falls we see will be much more in line with the gloomier predictions, than those still hoping for 5%, or even 10%. Wildcards include the recent changes to capital gains tax, which could well see many buy-to-let investors piling in to sell now, to lock in gains at the lower rate of 18% while they still have them.

Some individuals will feel the pain of falling house prices even more keenly. Anthony Hilton had a very good piece in yesterday’s Evening Standard where he pointed out that it’s hard to understand just how brutal a house price crash can be if you haven’t lived through one. He cited the example of one £1.3m home in London which fell as far as £650,000 in value.

Most of those homeowners and buy-to-let investors who bought into the market in the past five years were probably living at home with their parents during the last crash in the early 1990s. Many of them will be among the 75,000 households or so which Experian reckons will end up in negative equity this year.

Why the government can’t save the housing market

Inevitably, the clamouring is starting for the government to ‘do something’. But what can – or should – the government do? All through the boom, the bulls were claiming that the super-sized house price growth was based on fundamentals, and had nothing to do with slack lending practices. If they’re right, then prices shouldn’t fall very far before the fundamentals pick them back up again.

If they were wrong, then house price gains were a bubble based on rampant speculation. Those bubbles need to be allowed to pop, so that people don’t keep throwing good money after bad.

Of course, the reality is that many of the bulls knew this was a bubble. They just thought it was too big to blow. More than a few people used to argue that “the government will never let the housing boom end. It’s too important to voters.”

They will soon be reminded that there are few things less worthy of your faith than governments. For all its efforts, the Federal Reserve still hasn’t prevented US house prices from diving by more than 10%. Our leaders can’t hope to do any better.

Source: http://www.moneyweek.com/file/44993/the-end-of-an-era—the-100-mortgage-is-no-more.html