Two factors that led to the housing bubble now bursting

Factor 1. Low interest rates, irresponsible lending practices that made it look like more money was available for home purchasing than the regular economy of jobs, products and services could support.

Factor 2. Basic population growth versus supply of land. Growth versus protecting the environment. Supply and demand of build able lots is an aspect of this issue.

Both factors caused home values and prices to go beyond what our economy can sustain.

When people have to use more than 1/3rd of their income just to pay the rent, or mortgage, watch out. We've got economic problems.

Factor 1, the banking issue is a morass. Many are writing about it so my thoughts are just more for the pile. Here's my two bits.

If the bailout happens, I think the Federal Reserve will eventually be forced into printing lots of money to avoid default on the Federal debt. This will likely lead to strong inflation in which the economy of wages, goods and services will inflate and eventually catch up with high housing costs. Eventually a balance of sorts might be restored to the economy. Yes, inflation could bring us back into balance. Higher wages for workers, but also higher prices for lots of things outside the housing sector.

One of the problems of the past few years has been inflation in certain sectors of the economy, such as health care and housing, which have outpaced wages and other sectors of the economy. Remember, there are some sectors of the economy where prices have even been dropping. Think digital cameras.

Now think journalism. Professions such as journalism are now being largely turned over to things like "crowd sourcing."

Think "outsourcing" also.

As for factor 2, demand and supply of build able lots versus population growth, there are many solutions here which I have written about in past blog entries.

Reducing Population growth for instance. Also we need to increase the density of zoning, allowing more mixed income neighborhoods and other things to improve planning. We need to better accommodate the population that's here now and the projected population growth that's already in the pipeline.

Basically, we need planning and lifestyles for a more sustainable society.