The problem with housing is not so much that interest rates became especially high... It was that house prices became especially high. Most owners are still above water, with a cushion of equity possibly a paid-off mortgage that outweighs the current price drop.

The performance of home prices varies greatly by region. In more than 40 states, prices are not far out of line because they have tracked the growth of personal incomes. Most owners don't have to sell, and the market should be more stable by the time they do. For potential buyers, the housing shakeout promises to make homes more affordable in some overheated markets.