I was among the first to point out in February 2010 how the inability to finance home purchases would virtually guarantee price declines. Now a housing economist at Berkeley, Kennethh Rosen, confirms my earlier hypothesis, and is now quoted as saying that "We're not going to get a recovery in housing until the average borrower can get a mortgage."
Very simply, the lack of available credit reduces the ability to borrow and caps purchasing power. (It also makes a mockery of the record-low mortgage rates, which are meaningless if there's no credit.) Combine this factor with the proposal to require minimum down payments equal to 20% of the purchase price and you have two serious constraints on purchasing power. Add in the general recession, wage stagnation, effective inflation and numerous other real estate-specific factors like the glut of unsold units, overhang of properties waiting to be put up for sale, and the clogged foreclosure pipeline, and it is too easy to see a perfect storm for a new housing price plunge.
Eric Dixon is a New York lawyer, strategic analyst and business consultant who has been following the real estate market over the last decade.