I’ll just answer the one question.
A buyer’s market is when there are many sellers but few buyers. The few buyers have the advantage because prices are typically going down. Similarly, a seller’s market is when there are many buyers but few sellers. The few sellers have the advantage because prices are typically going up.
Ed
To the degree I understand your post, thanks for the clarification!
Absolutely correct; everyone interested in understanding this problem should read Neptunian slug’s post carefully, especially this last paragraph.
Median home prices have increase 50% over the past 12 years. Median household income has increased perhaps 5% over that same time period. Not surprisingly, many folks used ARMs to purchase these homes because they were unaffordable under the 30-year fixed rate. Furthermore, because lenders could now repackage these loans into clever investment instruments using rules that obscured the sub-prime nature of these ARM’s, there was an added incentive to get as many mortgages signed as possible; hence the increase in sub-prime borrowers.
The borrowers certainly deserve some of the blame–why should I be bailing out the guy who overextended for his McMansion?–but so do the brokers who profited from a system that many people saw was a catastrophe waiting to happen. Economists who understand the housing market have been predicting exactly what we’ve been seeing for at least a year before the first signs in the spring of 2007. They also predicted that the meagre government bailout plan would be insufficient, and that the problem would be further exacerbated in October as a large number of ARMs were scheduled for adjustment. Many folks in the financial markets however put their trust in brokerage hacks with an obvious agenda (sell sell sell!) who spent all day tinkering with their overblown computer model, mainly because they didn’t want to believe the party was going to end.