Take a look at the above chart showing Household debt. If you go on the fundamental principle that debt is driven by affordability. And you look at typical DTI (debt to income) ratios that have historically been used. And you also take into account that household income has been stagnant for the last 10 years. You would probably come to the conclusion that house prices and assets have depreciated over the course of the last 5-10 years and not skyrocketed. Why the disconnect?
Asset prices (especially housing) have not been supported by fundamentals, but completely by loosening loan standards and roll-over financing. These are unsustainable models that have to adjust regardless of whether Fannie and Freddie are nationalized. That only insures that borrowers with adequate finances can get access to capital. It should not provide access to capital to people who cannot afford the debt.
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