Why the Housing Crash Will Happen

Housing prices are a function of supply, specifically the supply of money made available to buy the commodity in question. This has been artificially inflated by tax gimmicks, by the subsidies of federally-backed mortgage buyers, by the lack of alternative investments, and by the over-use of dicey instruments like ARMs and interest-only loans. Bubbles burst when just about everyone is invested in the market going up. The triggering event can seem positive on the surface, like the Time Warner purchase of AOL, but whatever the trigger is it sets a ceiling for prices that rests at or below current levels. The last "triggering event" in housing was the 1973 Arab Oil Embargo. This raised inflation, thus raising interest rates, it caused unemployment, and it meant there wasn't a lot of money left over for housing, not as much as anticipated by prices.

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