[maxtower]

Subprime is not the only problem, merely the catalyst for declining home prices (along with oversupply) which is the problem.

Take your average Joe with good credit who either recently bought a home, or took out a loan against his equity to buy a car or something. In 2006 his place was worth $300k, so he took out loans for $295k. Now in the current market he can only sell his place for $270k, a 10% decline which is common in a lot of western markets like CA, AZ, and NV. He has a choice since his house is $25,000 under water. He can eat the loss himself and pay off the full amount of the loan or dump his credit rating and his $25k loss on the bank.

Now most people I think are forced to dump their properties on the bank through a job loss or other unforeseen expense. Some however will realize that their credit rating isn't worth $25,000 and just walk away.

Many don't rationalize it all. They just see that they can buy the house they want for less than it was. So they move in. Now they are faced with the reality of having two mortgages since they can't sell the old place for what they thought it should go for, forcing themselves into foreclosure.

In scenarios like this, the housing market is impacted by a much larger group than just subprime.