The large numbers of defaults in Inland California, Nevada, Arizona and Florida will cause pain for homeowners and endanger macroeconomic stability. That said, prices in these markets got well beyond fundamentals, and more corrosively, turned affordable housing markets into expensive markets (the USC group did some great work on how once inexpensive Riverside and San Bernardino Counties became havens for Southern Californians seeking homeownership.)
When prices in these places return to normal--and it is likely that they will--middle class household will again have large markets in which they can afford housing without strain. And that will be a good thing.
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