1) One part of the story that does not get much play is the demographic story on real estate. (Note graph on the left.) Baby boomers will try to cash out of homes to fund their retirement. Now, that effect will vary by region, because oldsters will want to live in warmer or drier climates. Perhaps apartments in Florida, the South and the West will benefit, as homes in the Midwest and Northeast languish. Then again, at least in the Midwest, it would be cheap to live there, as well as less popular areas in the South. Perhaps we should turn New Orleans into a haven for retirees. 😉
2) Housing prices down by another 25-30%? Sounds too severe to me, but markets do overshoot, particularly illiquid markets.
3) Even when recourse is available, lenders often find it not worth their while to pursue those who “mail in the keys.” There are many who are giving up on their homes, and rationally so, because they know that the home is beyond their means. They may have known it from the time they took out the loan, realizing that they got a lot more house than they ever dreamed of. Well, we wake up from dreams and face reality. Given the slipshod nature of the lending, many banks will not pursue for recourse. You can’t squeeze blood from a stone.
PS — I should have a post tomorrow on the portfolio reshaping.