You've read it here before that the largest factor to cause home prices to fall is not interest rates, it is unemployment. This makes perfect sense because no matter what interest rates are, if an individual is unemployed they will very likely not be in the market for a new home.

Nothing illustrates this point better than the fact that the last time there was a nationwide decline in home prices was during the Great Depression when unemployment rates were over 25% in our country. In fact, during the Great Depression, multitudes of homeowners lost their homes partly due to unemployment and a lousy economy.

However, most of them lost their homes then because mortgage documents at that time had a clause that allowed the lender to call the loan due at any time. During that time the banks exercised their clauses frequently because they were losing so much money from gambling in the stock market, which crashed in 1929 and from other uncollectible debts and lost revenues that resulted from the economic devastation of the Great Depression.

The unemployment problems of the Great Depression began turning around in 1933 thanks to FDR's "New Deal", which included massive increases in deficit spending and new banking regulations, but it was a slow and painful process. The unemployment rate was still an extremely high 15% in 1940. The unemployment problem was "fixed" by World War II and the drafting of 11 million men, which resulted in about 20% of the work force being removed from the labor pool.