Key thing to keep in mind is that if housing gets very weak then the entire economy will weaken significantly and the Fed will cut interest rates. Then mortgage rates will fall another 0.75% or so and housing demand will increase in response. So there are self-correcting mechanisms in our economy. It's a constant rebalancing of markets into an equillibrium.
Ok.
It can't happen. If they cut the rates too much there will be no one to buy our government bonds -- the way we finance our public debt -- and then we are really screwed (unless we cut spending). It's a delicate balancing act.
yes, but housing is still based primarly on the "supply vs demand" factor.
And in Seattle right now, inventory has doubled since May of homes for sale, but prices continue to rise. Supply vs Demand has been thrown right out the window and is currently sinking to the bottom of Puget Sound.
While the market will eventually self-correct. That doesn't mean its going to self correct in a nice easy way.