1. Like all things if the price is based on speculation and not the actual market that is a price bubble which burst.

2. People bought Homes they could not afford taking risky loans thinking the house would appreciate or they would be making more money.

3. Banks are hurt by defaults and stop giving out as much credit, meaning less people that can actually afford a home can buy one. Meaning Home prices fall even lower because of lower demand.



Whats going to happen now is that Larger Banks or Investment groups will buy out struggling banks and along with the Fed policy will infuse more liquidity into the market. At the same time because of the price drop more people will be able to buy homes thus increasing demand and stablising falling prices. SO I would say a year or two and we will have equilibrim in the market and then start going slowly back up.

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