Todd Zywicki is right to point out the concentration of losses in just a few areas.
Paul Krugman noted well before the bust, that the housing bubble was limited to only part of the US market. The difference in this “two-speed” market was restrictions on land use. Dallas Federal Reserve Bank research showed that where there was liberal land use regulation, the supply of housing was permitted to increase sufficiently to provide a vent that prevented local bubbles from occurring. Where there were significant restrictions on land use (regulatory structures variously called “compact city,” “urban containment,” “smart growth,” “growth management” and others), prices increased inordinately. The research on the impacts of such regulation is summarized at http://demographia.com/db-dhi-econ.pdf.
The metropolitan area markets of California, Florida, Phoenix, Las Vegas and Washington, DC, with their strong restrictions on land use, accounted for more than 70% of the pre-Lehman Brothers house value collapse. Average house value losses were more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati (see:http://demographia.com/db-ushsg2009q1.pdf).
If the losses in the more regulated metropolitan areas had been on the order of those in the less regulated areas, either the bubble and its burst (and the subsequent international financial crisis) might have been avoided, or, at a minimum would have been far less severe. Without the more restrictive regulations, losses of this far lower magnitude would have been expected.
In combination, the necessary and sufficient conditions for the bubble that led to the international financial crisis were more liberal loan standards and the more restrictive regulatory regimes in some major metropolitan areas of the United States. The more restrictive regulatory structures produced mortgage losses that were far too intense for the financial industry to absorb.
It is worrisome that the lesson has not been learned. Legislation proposed in Congress (such as the Boxer-Kerry and Waxman-Markey cap and trade bills and the draft transportation reauthorization bill) would attempt to force virtually universal adoption of the very kinds of restrictive land use policies that were so destructive to households, housing affordability, the economy and our ability to address the financial challenges ahead (see:http://www.newgeography.com/content/001174-congress-and-administration-take-aim-local-democracy).