We are on the threshold of the worst drop in real estate values seen since the thirties. The ridiculous overvaluation of properties goaded by the combination of low interest rates ,absurd mortgage products that became available to almost anyone which allowed for such absurdities as no down payment, negative equity, balloon ARM's, interest only vehicles, and combinations of such defy the imagination. All this fueled by "professional" realtors who often cleverly encourage people to buy above their means by stating that they are dealing with a leveraged investment that is bound to make money, not to mention half-baked "gurus' who tell people to get rich on "other peoples money". The mortgage banking industry, the media, and the politicians have all gotten into the act to encourage borrowing against the public's number one inflated asset to fuel this credit drunk economy. Many have undoubtedly benefited in the short term, but in the medium to long term most of us will pay dearly.
We are coming to the end of the line as housing values have peaked in most markets, and are starting to decline in many. The credit rubber band can only be stretched so far in this deficit ridden debtor nation. The pump of borrowing against hollow assets is starting to falter.
Declines in property valuation is starting in areas of heavy speculation such as California and South Florida, but I believe that since the mortgage equity bug has bitten all of America, the entire nation will be affected, although the level of decline will vary greatly from area to area, but this time it will be a national devaluation. The ultimate victim will be, as usual, the middle class, as the wealthy and financially savvy will always be able to minimize their losses. This phenomenon will continue to accelerate the shrinking of the productive middle class and produce further class stratification. Our security and freedom will continue to be whittled away as the majority of the public will feel less wealthy, less confident, and have less hope in the future.