A recent article in The National Review suggests that the current down turn in the real estate market is not nearly as alarming as pundits on national television would have us believe:

FINANCIAL markets gyrated wildly in August, in part because of concerns that the U.S. housing sector wouldbring the rest of the economy down. But markets were posi­tively sedate compared with many pundits, who look at the
U.S. housing sector and see Armageddon. columnist John Browne expressed a typical sentiment when he said, “The busting of the wildly inflated property boom will be like that of the collapse of the dot com boom. . . . We feel the real estate bust will spread into the general economy and other assets including the stock market”.
Turn on a cable-news channel and listen to an economics discussion, and you get the distinct impression that housing activity in the U.S. has just gone through an unprecedented and irrational boom. The morality tale is cited as proof that markets do not work, and that new and intrusive government regulation is needed.A look at the data, however, tells a markedly different story.    By the standards of past booms and busts, the current episode looks tame. By this measure, the boom was not nearly as high as past indiscre­tions, and the bust has already reversed it.Indeed, a simple, rational, free-market story explains the cur­rent housing mess. The Federal Reserve kept interest rates very low as the economy recovered slowly from the last recession. Those low rates boosted housing activity. When rates were lift­ed as the economy finally took off, housing activity fell back..Simple and straightforward economics explains price movements as well. When interest rates were very low, buy­ers flocked into the housing market looking for homes. All of that extra demand drove up prices of the existing housing stock. Home builders responded to the higher prices by building new homes. When enough of those were finished, it put downward pressure on prices because of the increase in supply.Of course, there have been excesses. But the market is deal­ing well with them. Those who made imprudent loans havelost a lot of money, and will not be around to lend again the next time the housing market takes off Prudent lenders will survive, and will finance the next takeoff. Which, the datasuggest, might not be that far away. By KEVIN A. HASSETT