By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
There are "experts" out there who once preached that there was no bubble; they now preach that all real estate is local and that prices in your neighborhood won't be affected by foreclosures and price declines elsewhere.
The cold, hard truth is that foreclosures are serving only to hasten the painful process of shifting housing prices back to a level the market can sustain. Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
2008 is the year when gravity will reassert itself. You should be adjusting your expectations of your home's value so that it's correctly aligned with market realities. And when making important financial decisions today, be realistic and factor those declines in.
Christopher Thornberg is a founding partner with Beacon Economics.