Ya, this is not like 2008 where interest rates were low AND housing prices collapsed, which actually did make houses more affordable. This happened because the recession was specifically about real estate and the bad mortgage loans blowing up. Since this is not happening now, even if housing prices stagnate or go down a bit, unless you are paying with cash, things are not going to be more affordable since rates are up.
Ya but being underwater doesn't really matter if you plan on living there for a long while. People will need a good reason to sell their house, like no longer being able to make payments due to job loss etc. (or they bought like 10 houses like in early 2000's...) So as long as the rest of the economy is okayish, I just see prices stagnating for a while. Also, inflation actually helps when you have a fixed mortgage...
You forget margin calls (mortgages with margin call provisions are illegal in California, and probably some other states in the US).
Basically, your mortgage says you have to maintain N% down. So, if the house price drops enough, you make a balloon payment or the bank forecloses, and sells the house at auction.
Once margin calls start triggering, there's an automatic sell off of whatever asset is impacted, causing more margin calls and a feedback loop.
90% of Britain's pension funds were hours away from being zeroed out by margin calls a few weeks ago. The Bank of England intervened.
It made for some great reading. This is why the UK gov't keeps walking back the mini-budget, and the IMF is making noises usually reserved for failing dictatorships.
