What s Next

Having taken a look at what happened and where we are today, let's now turn to what's likely to happen to the U.S. housing market—and the overall economy and stock market—in the future.

The short answer is that we 're probably in the late stages of home price declines, in the middle stages of write-downs by the banks and other institutions that are exposed to the U.S. housing market, and, regrettably, in early stages of the overall credit crunch. That said, we think there are great opportunities for savvy and courageous investors, on both the long and short sides, but especially on the long side—not surprising given that the major indexes are down more than 50 percent from their peaks (as of the end of February 2009).

The story over the past two years has been the mortgage meltdown, especially in the subprime area. Going forward, the U.S. mortgage market will continue to be critical—it is the world 's largest debt market, after all—but the next wave of defaults will be driven by the other types of creative mortgages. In addition, other debt markets that also got caught up in the bubble—especially commercial real estate, asset-backed securities and loans, consumer loans, and corporate debt—will start to show significant losses, keeping financial institutions, governments, and economies under pressure.

While debt markets of all types are encountering severe distress, we have kept the focus of this book on the U.S. housing market for two reasons: first, it's our area of expertise and we have few insights to add elsewhere; and second, we believe that the U.S. housing market will continue to be the driver of the entire credit crunch and recession. Only when housing prices stop falling and appropriate write-downs are taken will the overall economy rebound in a meaningful way.

That said, the housing market doesn 't exist in a vacuum. We are currently in a vicious circle in which the mortgage meltdown has driven the broader credit crunch and severe economic decline worldwide, which in turn is exacerbating the problems in the mortgage market. For example, if a business has difficulty borrowing money or refinancing its debt, it most likely has to downsize by laying off employees. These employees, in turn, are much more likely to default on their mortgages, triggering more losses to financial institutions, which are then even less likely to lend, and so on. . . .

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First Time Home Buyers Guide

First Time Home Buyers Guide

If you are getting ready to purchase your first home or if you think you can't afford to purchase your first home, don't make another move until you have read this important information! Every year, Federal, State and Local government and community development programs help thousands of people obtain there first home.

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