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» VISIT US ONLINE @ DSNEWS.COM THE BIG PICTURE of the crisis, it's time to face the inevitable changes and bring to light the new 'normal' for housing in America. As we pull out of the depths N ever in the modern era of banking has there been such a loss of real estate value. Never have so many mortgages been delinquent or foreclosed, or so many homeowners underwater. for everyone involved in the housing mar- kets—homeowners, lenders, builders, brokers, servicers—but the worst is now over; so it's time to set our sights on recovery and examine how changes in the consumption of real estate have altered—and will continue to alter—the state of the industry. One thing we can be sure of—whether through new regulations, changed practices, or evolving economic fundamentals—housing markets will never be the same. The last few years have been trying times Boom and Bust Lessons As the title character of the long-running satirical comic strip Pogo said, "We have met the enemy and he is us." A big reason for the big real estate bust is there was such a big boom, a boom with bad consequences not just for housing but for the U.S. economy as a whole. If home prices had just gone up and then down again as happens every once in a while, the damage would have been limited to those homeowners unlucky enough to buy at the top of the market. But as home prices rose year after year, everybody wanted to get in on the act. Builders built more; bankers lent more; and, most fatefully, homeowners cashed in the extra equity in their homes to buy cars and TVs and furniture, extending the economic expansion but leaving them tapped out when the party was over. Unintended consequences also followed from benign government policies. The invention of the toxic mortgage security flowed directly from ever lower interest rates, normally a good thing but a problem for pension funds and insurance companies with fixed future commitments. Hedge funds also need high returns to attract investors; and banks can't survive on spreads when interest rates are low. All found a solution to their problem in the higher-yielding securities fashioned by Wall Street wizards who claimed the experience of low losses in the small subprime market could extend to an enormously larger volume of business. Homeownership policies encouraged "creative" lending to aspiring homeowners and the homeownership rate, around 65 percent for decades, rose to 69 percent. None of this was meant to end badly. Yes, there were excesses—executives thinking mainly of year-end bonuses, regulators unable to regulate their politically connected charges, unethical speculators flipping properties, and small banks gambling on crony real estate 75

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