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Thomas Brown, Whitney McCollum, Jul 10, 2008
Oh how times have changed. Two years ago, when one of us last sat down to write about antitrust and the residential real estate industry, housing prices were rising around the United States. Some cracks had begun to appear. In particular, default rates on newly issued sub-prime mortgages seemed unusually high. But most observers expected the run-up to continue, and the likes of Merrill Lynch, Bank of America, and Wachovia had just revealed or would soon reveal deals seemingly predicated on the continued expansion of the business.
Today, of course, the U.S. residential real estate industry is in a tailspin. Prices for existing homes declined over ten percent nationwide between January 2007 and January 2008. Construction of new homes has sunk to levels not seen since Ronald Reagan was President. The value of the loans, CDOs, and securities written on the assumption that U.S. housing prices would continue to increase has been wiped out. The swift and sudden decline in housing prices has toppled one once formidable investment bank and pushed the likes of Citibank to travel the world in search of capital. The ripples from this unprecedented decline in U.S. housing prices (at least for those who forgot what happened to housing prices during the Great Depression) have pushed the U.S. economy, perhaps even the global economy, to the brink of recession.
Through the go…