The home price bubble in America is truly large. The sub-prime issues are minor in the context of what is probably going to happen in the coming weeks and months. Here is a scenario: I have an investment for you that is called E-moh. E-moh pays a dividend below treasury bills and is higher than it has ever been in terms of price. The market place for E-Moh is enormous but saturated. I am going to ask you to buy shares in E-Moh that are worth 5 times your annual salary.
Now, E-Moh might sound like a dot-com with a ridiculous value proposition. It isn't, it is actually a way of looking at Home in a different light. Here is some data a dug up. If the ratio of homes to wages were to revert to it historical average the U.S. domestic real-estate market would lose $6.6 trillion paper value.
Ouch. Here are the graphs and spreadsheet. The Green line is the average ratio. Now many people will argue that homes are different etc. 2 people incomes etc. I would counter the size of the average household has fallen dramatically.