Steve Keen on housing in 2012

All makes perfect sense

I expect this rate of decline to keep up for 2012, so I’d expect prices to be of up to 10 percent lower than they are now by the end of 2012, in inflation-adjusted terms.

The force driving prices down is the same one that drove them up. Houses are overwhelmingly bought with borrowed money, so keeping house prices where they are requires a constant supply of new mortgages at the same level (relative to GDP per household) as now; rising house prices require new mortgages to be growing compared to income; and house prices fall if mortgages grow more slowly than income. That we’re now in a period of mortgage debt falling relative to income is finally obvious; only the FHVB delayed this happening.