Lonn, 

Bring it right down to the basics.  I was talking with an"informed agent" about the values of property, interest rates and inflation.  It amazes me how some people think they understand and don't really. 

Let me pose a question back see how you field it:  Why is it most likly that interest rates will increase in the future?

Yes the market will self correct.

The market was 100 percent rational. Lenders said sure we will give you money, sure you can buy a home, sure you can have the American dream. So you would have had to be irrational to pass this up. The irrationality came from lenders make credit to easy

Yes credit may have been given out too easily but it makes it more difficult for those that have good credit and the process is taking longer sometimes.

There is rationality to a degree. But folks began to feel like prices were never going to stop, so they were paying dumb prices, as we can now see. I saw it in 2005, that was the point in my market where things got out of control. Things work in cycles, don't sweat it. We will look back on this market and 2009 and think, "Wow, I should have bought THEN".  Bank on it.

Brian:  Good comments.  Real Estate Interest Rates will increase because the market is rational : )  The pendulum has swung and only has one way to go.  Lenders sales volume on loans is very low right now.  Lenders have bills to pay, so rates will be pressured upward.  Further, at current prices, people will start buying homes again.  DEMAND for credit will drive rates up further.

Charlie:  Lenders were also part of the rationality.  If people would buy the loans in record numbers, and if most people do pay their mortgage, then it was statistically rational to offer the product to a willing market.  Of course, they charged more for that easy availability, which was also rational.  And of course, when the product did not perform as desired, the lenders drew back because they no longer wanted to "buy" subprime borrowers loans.

Tom:  Yes, the changes have made it hard for regular folks to buy houses.  This too will come back.

Mike:  I am with you.  It's a great time to buy.  Most people miss the turn in any market cycle.  Market Timing is the hardest part of any investing strategy.  I have predicted that the turn is closer than the economists think.  Why?  Because the market is rational.  There are a lot of great buys out there.  If you are thinking about getting into real estate as an investment, it's time to Pull the trigger!