Risks:

+ Property prices fall.

+ Competitive options for housing in vicinity of your property decline in price, causing rent you can charge to fall. For example: if you can buy a modest house in Detroit for $10,000 why would any worthwhile prospective renter pay you the $500 a month you need to cover the mortgage and maintenance on the modest home you bought back when Detroit had viable industries in it?

+ Can't find a tenant, get to eat mortgage.

+ Renters trash house, enjoy $20,000 repair bill.

+ Renters stop paying rent. Enjoy eviction process.

+ Your local government decides evil landlords are exploiting poor people to make money, institutes rent control. Enjoy low rents, impossibility to unload property on another sucker, etc.

Demand will rise again once the general mood changes and people are willing to take on a bit more risk. Renters will be more likely to buy homes when they feel their jobs are safer. And landlords will buy more rental properties when they feel more confident about the risks patio11 outlined above.

http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27...

We recently passed 150 on the way down. Still got a ways to fall.

When will prices go back up? 10 years? 20 years? Never? Why should they go up? I've only heard one reasonable explanation for increasing prices. Apparently certain areas, like New Jersey, are now effectively "full". Therefore people who want to live there will be spending a higher percentage of their income on housing going forward.

I don't know if it's true, but it sounds plausible at least.

EDIT: the reason for New Jersey being completely built out is NIMBY laws, not that all the land has been used.

Except that in many cities there is no room to build any more houses, so prices go up based on how many people want to live in a city.

People want to live in a city usually for economic reasons. (Close to jobs, cheap services etc).

So basically, unless you are buying rural property, prices will go up when people want to move to cities.

All that's economics - but the real world is a bit more complicated. People determine how much to pay for a house based on two things: how much the seller wants, and how much money they have.

Easy loans made it such that people had lots of money for houses. Sellers like to make a profit when they sell a house (it's emotional, not logical).

Put those together and you have a housing price boom. But it can't (couldn't) last because it doesn't match the real economics of the situation.

At the end of the day prices should move based on population in cities, and inflation.

And BTW people are already buying up city blocks in Detroit. The biggest problem there is crime though, which makes it hard to buy a house and hold it for a while.

Or sell - rental housing is work and illiquid. After "back up", there's probably something better to own.

> except that in this case, why aren't the rich and wealthy buying it up?

What makes you so sure that they aren't? (I know folks who are.)

Also, some may be waiting for a better deal. For example,

http://justoneminute.typepad.com/main/2009/03/give-investors...

and

http://www.marginalrevolution.com/marginalrevolution/2009/03...

http://www.nytimes.com/2009/03/21/business/21bank.html?_r=1&...

Prices probably won't "go back up" the way anyone hopes. The prices were fake. The crisis will end when the prices either 1) Fall to their "real" market value, or 2) The government pulls a fast one and inflates the currency until the shrinking value of the dollar meets the prices people have come to expect at that real value. (And everything on the dollar menu at McD's costs $2.50)

I think its fairly obvious which choice has been made by the suit-monkeys.

It seems inhumane to me to hope that one can profit off of homelessness and a reduction in the overall quality of life of your fellow citizenry.

Umm... landlords profit off of homelessness by eliminating it. That would normally strike me as socially beneficial.

It's about as inhumane as a grocery profiting off of people's urgent need to eat on a daily basis.

Not quite what I mean. I'm talking about the fact that housing is a poor field in which to apply demand-side economic policies.

Housing is a place, where, if one wanted to make housing more accessible, you must improve the supply. Supply-side policies are necessary here in order to bring down materials costs and to continue to build more housing to bring prices down.

If the cost became low enough, and people learned proper saving habits, mortgages would no longer be necessary and people would stop treating a durable consumer good like an investment.

Housing is not an investment, it should never be treated as an investment. Only by artificial tampering with the market or a self-perpetuating case of mass delusion could ever make people believe housing was anything other than a durable consumer good.

The real estate situation leading up the crisis of today was wholly unnatural and unhealthy.

If you want to increase your net worth, invest your money in a solid business or make your company.

In a large number of places, housing prices are not all that dependent on materials costs. (Or rather, other things drive up the price to the point that people spend more on materials because that doesn't have much effect on the overall price.) Instead, they're driven by land use and other policies.

> Housing is not an investment, it should never be treated as an investment.

Housing is a large pile of resources. While it's a durable good for consumers, it's an investment for housing providers, builders, and so on.

More to the point, things that people do for profit are far more likely to happen than things that people do "for the common good" or some other reason. And the desire for profit is what drives prices down.

Investment is a great way to get profit involved.

but what about people that already have giant piles of cash on hand? ... who can buy houses w/o taking any loans at all

in particular, if people are greedy enough to cause this mess, why are they not greedy enough to benefit from it?

It's just another variable amongst others with temporally varying degrees of importance.