[Pessimist]

"this does not mean that the 600K will slump to 300K. Housing demand may grow more slowly, but the amount of people who already want houses will not diminish significantly."

I guess the mechanism of a bust here, if it were to happen, would be that rising interest rates force forclosures which in turn flood the market w/ housing. I don't know anything about these new interest only loans, but couldn't decreased housing value also force essentially a "margin call" at some point too?

[wideawake]

I think your scenario is correct - but I also think it occurs on a market to market basis.

Prices for presold lots in a brand-new exurban subdivision will collapse.

But prices for existing homes in established suburbs and city neighborhoods will probably hold up quite well.