0 Why it all matters.

It is well understand that the credit crunch has effected real estate in the last six months and especially so with the tightening of programs for the jumbo market. The impact of the dramatic change in the mortgage industry will have far reaching effects on clients now and for years to come. Many people don't think they have any involvement with the 'Subprime' problem as the media likes to refer to the credit situation within real estate. The effects are wide ranging and people won't realize the impact on their own pocket book until they have to sell, refinance or purchase. For people looking to sell now or anytime in the next few years need to face the reality of today's market not the fantasy land of what a friend sold for in May. I believe values in bubble markets will continue to adjust lower each month as the inventory increases, closed transactions decline, and the tight money environment reduces the available pool of buyers. As an example, a client could have perfect credit, excellent income, but 100% financing for a purchase over 417k on a single family home is no longer available. That could delay the purchase as the client has to save the minimum 5% down payment, plus have six months of PITI on deposit as well. Every purchase scenario is different as you have people upgrading, downgrading, first time home buyers, and investors all within the marketplace buying/selling homes. But, overall you can see the stress the market is under with the changes that occurred since April when all the subprime lenders began to fold. The impact of the changes in prime mortgage lending really has just begun as it wasn't until the first week of August that the jumbo mortgage market began to change guidelines and move up rates to compensate for the added risk. This won't be seen in the numbers until the Sept numbers are reported in Oct.

Make no mistake, this isn't a liquidity crisis. Money is available to lend, but its available at lower risk levels or much higher rates than the public has become accustomed to over the last few years. In looking at listings throughout the hot areas you can start to see the smart sellers capitulate and move their asking prices down. Buyers are searching for a deal and seem to think prices will move lower so they are very patient. They often are bidding well below asking prices because they are conditioned by watching listings fall in price throughout the bubble markets. We have moved into a period of slowly declining prices in the hot areas, notice the deals that are closing are priced right for today's market. Not what a neighbor sold at in July. The market is different and once all participants understand the changes that have occurred you will see inventory decline and sales volume pick up. This could take several years. A lot of mortgage debt is resetting to higher(unaffordable) rates in the next two years. This could put a lot more homes on the market further pressuring prices. Homes are selling on their fundamentals and buyers are not counting on property appreciation to bail out a poor decision. So they are buying carefully and are often requesting very safe 30Y fixed loan scenarios.

In my next article I will highlight why falling real estate prices will have an enormous effect on people refinancing. After all, one of the tenants of mortgage lending is loan to value. If your neighborhoods values are falling, that will absolutely have an effect on the rates available come the time to refinance. Has the real estate environment changed your plans for selling, buying or refinancing? Please comment.

Detail: Why it all matters.

0 "When should I buy a home?" The quick answer.

Thousands of numbers, graphs, charts and economic reports can be boiled down for the first time home buyer looking in the previously smoking hot markets for the quick explaination to the question of "When should I buy a home?" When you see this chart of Countrywide's total national foreclosure inventory that they own and are trying to sell via thousands of realtors across the country start to stabilize and then move down again things are getting better. I don't think that will happen until 2010-11 as the amount of loans resetting to much higher rates is just starting in earnest this Oct/Nov, right before Christmas. These are homes that went to the auction step and Countrywide was the high bidder and won because they were trying to protect their skin in the game. Chart courtesy of the good guys at Countrywide Foreclosure Blog. Here is a recent scheduled adjustable mortgage reset chart also:

Detail: "When should I buy a home?" The quick answer.

0 A Distorted View:Existing Home Sales.

Today we received the existing home sales from the National Association of Realtors and I wanted to comment on these a bit. The headline numbers are off 9% from last year and the median price is down only 0.6% nationally. The median is being distorted by sales volumes above the median in each area propping up what would otherwise show falling home prices in these areas. The greatest decimation in the market has been in middle class housing. Homes priced below 500k have seen the largest price declines and volume decreases. Sales at the high end of the market continues to stabilize the median value. The western region has a median home value of $349,400. The median in Los Angeles for example is about $575k. I think median values are pointless as a forecasting tool. What would be the point of knowing the median price of stock on the NYSE? What's the point in knowing the median price of gas nationally? The price of gas in CA is higher than most other markets because of taxes and a lack of refining capacity boosting the price at the pump. The price you pay in your market matters. Real estate is a locally priced good. It doesn't matter if a similar home is $250k in Chicago and $400k Los Angeles. A home is only worth what a buyer in that local market is able to pay vs other comparable properties in that immediate surrounding market. This is largely dependent on available financing. As the financing has become tighter and more expensive because of higher rates across the board the volume has dramatically declined from prior years.

You can't compare the median value in Malibu to Compton. Pointless. Those markets are at the opposite ends of the spectrum. The only value in my opinion in the NAR home sales numbers are volume and the amount of existing inventory. Volume leads price. The amount of available homes for sale allows the potential home buyer to have more choices and bargaining power. This pressures asking prices. Then as properties languish on the market sellers realize they are above the market and often lower their prices or remove their home from the market altogether. The amount of homes on the market locally and nationally leads me to believe that we will continue to see price declines across the country but especially so in bubble markets for years to come. Notice the big drop off in sales around Mar 2007. That's the start of the implosion of subprime lending. The July numbers are barely reflecting the implosion of ALT-A lending that started in mid July and ran throughout August. I believe the August numbers will post an all new low as financing has become much tighter in the last few weeks. Bar chart courtesy of Calculated Risk.

Detail: A Distorted View:Existing Home Sales.

0 Where did the punchbowl go?

Having personally lost a small fortune in the stock market in 1999 and 2000. I can tell you that markets can stay irrational for a very long time. Any seller that has had his/her property on the market for 60-90 days and hasn't received a reasonable offer is nuts. They need to drop their price or sit out the credit crunch. The credit crunch could last many years.

The big problem I see and I speak to dozens of realtors a week; is that sellers feel that their "equity" is real money. I always have to remind people that something is worth only what another person is willing and able to pay. The ability of people to pay irrational prices for homes in bubble areas is gone for the middle class market. Remember the rich are different. Working class vs asset class. The loose financing is gone. Stated loans are on life support. Real income for middle class Americans has barely kept pace with inflation the last few years. At the end of the day Wall St can create the wildest financing known to man but it has to be repaid some day. Investors don't give money away. The market for ALT A and subprime mortgages is DEAD. In addition, a knee jerk reaction has occured in large prime loans as well requiring extreme levels of documentation and big down payments on the order of 20-25%. No stated income loans unless you are putting 20% down and have a 720 FICO. That is a generalization of course as every loan scenario is unique.
I am a very optimistic person by nature so negative views are seldom heard from my lips. I am sorry to say that we are in for a very long period of recession or stagflation(low growth with inflation i.e. late 70's). If you need a broader clue as to how bad our nation is currently behind the eight ball check our dollar vs major currencies and you will see what the world thinks of our prospects. Too much governement and household debt. The world's appetite for our excess is over. It's time to save and be prudent. Back to reality. The punch bowl of easy money is gone. Parties over it's time to sober up.

Detail: Where did the punchbowl go?

0 Interesting Info from Countrywide.

Given the daily rush of news, I think a lot of careful analysis gets lost. Thinking about Countrywide's conference call almost a month ago, these slides are very valuable in thinking about where housing and the mortgage industry could be heading. Countrywide services about 20%+ of all mortgage paper in this country. So they have a remarkable opportunity to analyze the specific loan performance of various types of credit and mortgages from conventional to jumbo and the exotics that we may never see again(i.e. option arms and 2/28 ARMs.) Please post your insightful comments. Enjoy this info and give it some thought:

Detail: Interesting Info from Countrywide.

0 Lenders and Brokers:Only focus on conforming!

I received this just now from INDYMAC. They are a large thrift based lender that does retail and wholesale.

"Time to shift our focus…

The mortgage industry is changing rapidly and oftentimes without warning. In order for you to continue to succeed in this industry, you must embrace change. Today, another one of our lending competitors, GreenPoint Mortgage, closed their wholesale operations. It is definitely a time to focus on what we can do rather than what we no longer can.

Income Documentation: Embrace Full Doc.
Stated, No Doc, NINA, etc. are still being offered by IndyMac Bank for conforming loan limits. However, the shift in our industry has definitely gone to Full Documentation. Don’t be afraid of W2s, Pay Stubs, and 1040’s. We even allow you to document income via a fully executed VOE for your wage-earning borrowers. We also allow Non-Occupant Co-Borrowers to be on the loan if you need more income. Also, Fannie Mae MyCommunity loans are designed to help your lower income borrowers qualify.

Conforming Loans and DU Approved Loans: Currently 50% of the National Mortgage Market – Soon to be 90%.
We, along with our competitors, are shifting to lending on conforming loan amounts. In the 48 mainland US states, the conforming loan limit is $417,000 for SFRs and $533,850 for 2 units, and higher for 3 and 4 units. Alaska and Hawaii have their own limits. Whether you believe it or not, there are customers out there that need loans within these limits in CA – you just have to find them. With full doc conforming loans comes a world of excellent products. These Fannie Mae/Freddie Mac based products will allow you to reach more customers.

Alt-A Jumbo / Super Jumbo / Ultra Jumbo
These products are still here, however, focus on business that are of higher credit quality and lower LTVs. Although we live in CA where the median home values are above $500,000, we need to shift our focus to the business that we can do. If you’re going to do jumbo loan sizes, your efforts would be best spent on deals with lower LTVs, higher FICOs and higher liquid assets."

What does this all mean to the average hard working american homeowner? INDYMAC and other lenders are saying that the only loan market that is functioning is the conforming end of the spectrum. I have heard this throughout the day but this was one of the largest to issue a warning to their wholesale channels.

The jumbo market which is about 12% of all mortgage loans nationally but is a huge portion of the market in Southern California is showing increasing signs of distress. A week ago the mortgage market felt that the lack of investors in the secondary market would recover for the best mortgage paper. We got a discount rate cut on Friday, the stock and bond market cheered but we haven't seen any liquidity move to relieve the constipated state of the non-conforming market. We are not talking subprime slime or alt-a loans. This is prime full doc refinance or purchase loans that lenders/investors are avoiding. Anything above 80% loan to value is having pricing trouble and I have seen rates in the 8% plus range for jumbo mortgages. I believe this will get worse before it gets better. Refinance your jumbo mortgage while you can.The jumbo mortgage market completely depends on mutual funds, pensions, hedge funds, and foreign governments. They are in the slow process of repricing the risk and we will likely will see rates about 7% for the best credits for the next few months.

Detail: Lenders and Brokers:Only focus on conforming!

0 Excellent Jumbo Mortgage Summary

Here is an excellent piece from http://paper-money.blogspot.com/
"I hate to belabor this point but I really think that the vanishing of the affordable prime Jumbo loan is easily the most significant development for home prices that I have heard all year.Remember, the Jumbos have dried up for PRIME borrowers.But what does it mean to say “dried up”… again, as I noted before, it simply means borrowers will need to put 20% down (or have 20% equity for refinance), provide full disclosures of income (tax returns, stubs, etc.) and then pay over 7.5%.

This appears to have happened merely because Wall Street, who inevitably supplied the liquidity behind these loans, are now obviously more risk averse and are effectively unwilling to cheaply underwrite large home loans.And the cheap Jumbos are not coming back anytime soon.Why?These loans are for the most qualified borrowers at the higher end of the income spectrum so you have to ask yourself… what is wrong with affluent borrowers being required to put 20% down, verify income, and pay a premium for a large principle loan?The key point here is that the terms have just come back to normal… NOT tightened!

Also, remember that, unlike the subprime issue, there is not even the slightest chance that any government program, Fannie, Freddie, FHA, VA, etc. or for that matter any politician can do or will do ANYTHING about it.People who currently have rate-resetting large principle loans or are planning to get one for a new purchase are on their own.Again why is this important?Because, in the last 5 years (really the last 10 years in the ultra-hot bubble metro markets) it’s NOT been the Vanderbilt’s who have been making use of Jumbo loans… it’s been the middle class dual income couple (DINKS and with kids) and the upper middle class professional individual.

The out of control spiraling buying mania forced virtually everyone in the bubble metro’s to stretch ever higher for the brass ring of the coveted residential property.Whether it was for a starter single family, rehabbed single, simple or luxury condo, affordable Jumbos with low down payments were a KEY element in enabling the prime home buyer to function in these areas.

This is the major shoe to drop for the ultra-inflated home prices in this cycle.As for today’s Fed discount rate cut… Don’t look for that kind of Federal Reserve action to restore the easy lending days of the past.At this point, lenders, banks and Wall Street alike are merely concerned with how to stabilize their operations, preserve capital and stay solvent NOT how to maximize profits by ignoring risk."

Detail: Excellent Jumbo Mortgage Summary

0 Musical Mortgage Chairs!

In speaking to investors, clients and realtors; I came away with the idea that the mortgage freeze is like a game of musical chairs. Some of us can remember the feeling of scrambling for that last chair as the music stopped. Many property investors that have a large number of single family home rentals(10-15 in some cases) are trying to grab at financing that doesn't exist in today's mortgage market. They will be forced to sell. Many investors are barely holding onto rentals that only made sense for the property appreciation that happened between 2001-2006. The negative cashflow was big to the tune of 1-2k a month with the taxes and insurance per house. Many of these folks took interest only mortgages or negative amortization loans because they were really betting that housing would rise in the next few years and they could sell with huge gains. Now that housing prices are falling; the music has stopped, but so many people just don't realize it yet. Did you know the music stopped a few months ago? Better find that last chair.

Detail: Musical Mortgage Chairs!

0 Countrywide Mortgage in Liquidity Crisis.

Forbes 8-6-7:
"Countrywide Financial offered hope Monday that it might avoid the fate of other troubled lenders. The mortgage company revealed that it has cash access that could help it survive brutal industry conditions. In Monday filings with the Securities and Exchange Commission Countrywide revealed it has $186.5 billion in available liquidity. It also said it has access to $46.2 billion in highly reliable short-term funding. "

Fast forward ten long days. Today we were greeted by another bad sign that mortgage markets have stopped working. Countrywide is the largest lender in the country. They originate through retail and broker channels roughly 20% of all mortgage loans. They funded $40 billion last month. This is not subprime, or ALT A, the majority of these loans are very prime mortgage loans to folks fully documenting their income. They were forced to tap a line of credit they have to the tune of $11.9 billion. They did this because they couldn't use their traditional financing of borrowing in the short term commercial paper market. This is bad in that the largest lender in the country is not being trusted by the global community to lend money to on a very short term basis.

The impact of these events and others to follow is that mortgage rates will likely continue to rise for any mortgage loan that doesn't fall into the conforming guidelines of Fannie Mae or Freddie Mac. This will have large ripple effects throughout the financial community and especially so in housing over the coming days. The rates for non-conforming loans is between 6.75-7.75% for scenarios of putting 20% down, fully documenting income, and prime credit levels. This is up from the high 6% range. This is putting pressure on the $650-$1.5m market. This can be clearly illustrated by our friends at http://www.irvinehousingblog.com/. Above these values you move into super jumbo mortgage rates and they have been in the 8-10% range for most scenarios. I have to get back to the grind. Stay sane and remember that Rome isn't burning, it's just a little smoke.

Detail: Countrywide Mortgage in Liquidity Crisis.

0 Time Heals all Wounds.

It has been a few months since I last posted. I find hundreds of other authors doing a good job covering various elements of the housing and lending collapse. Although, I would add that most bloggers are outside observers and a few have very biased views. Of course, I have my bias as I am a mortgage broker here in CA. An unstable housing market isn't good for anyone. Sure it was easy to find a mortgage loan for a client as long as they could fog a mirror. But, all the competition for housing priced out the rational client's that didn't want to take on risky financing.

I didn't hear of pick a payment or negam loan until 2003. After reading through the paperwork, I really thought that the product was being sold to less than savy clients. Wall St created these products because it allowed the investors of these mortgages to make very large returns. Estentially, the balance is compounding at a rate somewhere between 7-10%+. The borrower is only paying 1-3% and the rest of the interest is tacked on to the balance. I have seen clients that went into major banks like WAMU or Indymac and thought that they were getting a fixed loan. Sure, they signed a one hundred page plus loan document, but clients rarely read these forms. They are written by a room full of lawyers and regulators. The average person has trouble setting up their cable modem and setting the clock in their car. Do you think they will get the potential risk of negative amortization in a flat or falling real estate market? The balance is going up and the home owners equity is evaporating each month.

These products were sold as a way to help people buy houses or live a lifestyle they couldn't otherwise afford. The lending industry has been burnt on this product and it is no longer available but for the most well qualified clients. People forgot the old childrens tale about paying the piper. Eventually, you have to pay the money back. It's funny, people used to take pride in paying cars and houses off. The crazy easy money era convinced people that debt was king. Borrower till you don't need or want anything else. The crazy money era ended in March or April of this year when housing started to fall and the subprime lenders began to implode.

Investors will take almost any risk as long as they are compensated with an appropriate return. That's what hurrican insurance is all about. That's why after you have a major car accident your insurance rates go up. Sure, State Farm will cover you, but they need to be compensated for the added risk. Right now in the mortgage market, the investors(banks, pension funds, foreign governments, etc) don't know what the default rates will really be so they can't model the risk correctly so they have decided not to lend to risky credits or risky loan scenarios.

The rates for jumbo loans (417k+) has gone up about .75% in the last two weeks because a default on a 800k home could cost the bank 100-200k by the time the home is sold. The interest rates for second mortgages has gone up about 1-2% for client's with excellent credit because even the most credit worthy get divorced, get sick and lose jobs. If a default occurs on a 2nd mortgage in this market and they have to foreclose, the 2nd is likely wiped out entirely.

It will take 3-5 years in my estimation for this to entirely work out. I expect real estate prices in the hot markets to steadily drop for years. The underlying fundamental of home mortgage finance is the borrower's ability to pay the loan back. Regular residential housing will revert back to a level that can be supported by a dual income household making a regular 30Y fixed mortgage payment. The upper end of real estate 750k+ is largely driven by rolling equity from starter homes, the stock market, and income earners in the top 10% nationally. Don't forget that the wealthest people in the country live in CA, NY, and FL. I expect this market to soften with rising rates. It is a bifurcated market. The middle class became convinced by all the forces that be that they needed/deserved four plasmas, a Hummer and a 50k pool upgrade on the salary of a handy man and a secretary. Everyone should get the most out of life but not at the expense of their future when the piper comes to take their home away.

Lessons are being learned and things will get a lot worse before things get better. But, one persons foreclosure is another persons new bargain home purchase.

Detail: Time Heals all Wounds.

0 They get you coming and going.

For homeowners seriously delinquent on their mortgages & hoping for some relief, the IRS has bad news: If your lender agrees to modify your loan & forgive any part of your debt, you could owe federal income taxes on the amount forgiven.This is especially bad news for the growing numbers of credit-impaired sub-prime borrowers who find themselves "upside down" in the current market: They owe more on their mortgages than the value of their houses, thanks to noxious combinations of zero down payments, declining property values & hefty payment increases they can't afford.

Detail: They get you coming and going.

0 Good Credit Client's Defaulting.

Now that sub-prime is heading toward the light, the focus shifts to the ominous Alt-A loans. You know, the grey matter between prime and sub-prime. Take a look at this chart.

As you can see defaults are rising sharply partly because rates are resetting and housing prices have become stagnate. Countrywide and WaMu are some heavy hitters in this group but all eyes will be on IndyMac to see whether they follow the path of big brother sub-prime. This free flowing money again is because of loose monetary policy that encouraged credit creation and the populations incessant fascination with all things real estate. Just look at the sharp rise of 30 day lates; this will parabolically explode because we are resetting at approximately $100 billion per month and housing is going the opposite way. Otherwise we are in a perfect time bomb with no remedy. All the adjustable rates are resetting at least 2% higher than their current rate and people can't make the payments. They need to refinance before their rates reset. If they make a late payment they become subprime for the next three years and the lowest rates in subprime for fixed mortgages is about .50-75% higher than prime. That is several hundred dollars a month more for most home owners.

Detail: Good Credit Client's Defaulting.

0 It's spreading:Target and GM Site Mortgage Meltdown for Decreased Sales.

April 23 2007: 4:28 PM EDT
LOUISVILLE, Ky. (Reuters) -- The crisis in the U.S. mortgage market has hurt U.S. auto sales this month, General Motors Corp. Vice Chairman Bob Lutz said Monday.
Lutz, who was in Louisville, Kentucky to attend an automotive industry conference, said he did not know how GM's (Charts, Fortune 500) own sales had performed in April to date, but said he expected the whole sector would feel the impact of the stress on the housing finance market.

"The market as a whole has been a little weakish. That has come as a result of the housing market problems and the mortgage industry meltdown," Lutz told Reuters. "A lot of people are finding themselves in a position of reduced affordability and that has had an impact, not just on us, but across the industry."
GM and other automakers will report April U.S. sales results on May 1.

Regarding Target from CNNFN.com:
"It's pretty surprising," Morningstar analyst Joseph Beaulieu said of Target's lowered forecast. "I don't think anyone really understands what's going on."
Beaulieu speculated that colder weather or high gas prices might have kept customer away from the stores in recent weeks.
Earlier this month, Target said it expected April same-store sales to fall 2 percent to 4 percent due to the earlier timing of Easter. Target's March same-store sales - a period that included pre-Easter shopping - rose 12 percent.
ThinkEquity analyst Ed Weller wrote in a research report the lowered forecast "appears to suggest an April (same-store sales) decline in the range of 8 to 9 percent."

Detail: It's spreading:Target and GM Site Mortgage Meltdown for Decreased Sales.

0 Builder Cites Subprime as Slowing Sales

From National Mortgage News:
The crisis in the subprime mortgage sector is shaking the very foundation of the housing market, according to one of the nation's largest homebuilders. Ara Hovnanian of Hovnanian Enterprises said the subprime debacle is causing problems up and down the housing food chain. For one thing, fewer people can qualify for starter homes, Mr. Hovnanian said at the National Association of Home Builders' Multifamily Pillars of the Industry conference in Hollywood, Fla. For another, repeat buyers are finding fewer prospects for their houses, which they must sell before they can move, he said. But perhaps most important, the situation is having a dampening effect on the market in general. "The biggest impact is psychological," Mr. Hovnanian told the meeting. "Homebuyers were just beginning to feel good about getting back into the market" when the subprime meltdown became fodder for the media, he said. "Now they have lost their confidence." Hovnanian Enterprises is the parent company of K. Hovnanian Homes, the nation's sixth-largest builder based upon revenues and deliveries. Mr. Hovnanian said 15% of his buyers had to use subprime financing last year in order to qualify. But he said he expects that percentage to dwindle to 9% at most because of tightening loan standards.

Detail: Builder Cites Subprime as Slowing Sales

0 It's only in subprime it won't impact us!

Really? Rewind to basic Econ 101. Remember supply and demand. We know that when supply overwhelms demand that prices fall. With all this supple on the market where is the demand going to magically come from to prevent prices from dropping. One hundred percent financing for most credit levels is gone entirely. Average credit level buyers are being required to put at least 5-10% down with most lenders. Six months ago if you had a pulse you could get 100% financing. Millions of potential home buyers(greater fools in some markets) are completely out of the game. My honest take is that we will see prices in some hot markets drop 20-30% from their peak over the next 2-3 years. Realise it is a slow inefficient market that takes time to adjust back to reality. With all this gloom and doom comes a ray of hope for the future buyers that can finally get a home at a reasonable price again. Just wait till 2010 to buy that condo in Vegas, OK?

Detail: It's only in subprime it won't impact us!

0 Ticking Time Bombs?

As you can see the last part of the real estate boom was fueled by the riskiest credits. They were late to the party and many of these folks are already upside down on their houses. It won't take much to make them think about turning in the keys. Their payments are adjusting higher, their income is stagnant and their dream of homeownership is becoming a nightmare. Many will walk away.

Detail: Ticking Time Bombs?

0 Heat Map of the Mortgage Meltdown

This is an interesting map. You can see the once hot real estate markets that are facing large increase in late payments. The exception would be La. which is a mess following Katrina and the lack of flood insurance which has caused people to abandon properties. Notice the huge increase in the Inland Empire and Las Vegas. These were the hottest markets in 04-06. These markets have a huge percentage of subprime mortgages that are adjusting.

Detail: Heat Map of the Mortgage Meltdown

0 Housing: Inside the eye of the storm.

I present for your viewing pleasure an insiders view of a presentation I attended. Home values in the middle class segment of the market deflate, foreclosures increase monthly, consumer spending slows down and the economy faces stagflation. That's just my take. But your smart, you do the math.

Notice the amount of subprime loans that are adjusting over the next two years. The first adjustment is 2% above their current rate. And up to 2% every 6 months until the cap of 9.95% is reached.

The riskiest borrowers became a bigger portion of the purchase market.

Having trouble driving volume and qualifying people. The industry pushes and the client demands very aggressive mortgages that could well be a ticking time bomb for millions of families.

Here you can see the hot areas of the country were fueled by the most dangerous loan products. How else would people be able to chase inflated home values and take on enormous mortgages if not for creative financing? Afterall, average middle class income is rising around 3% a year. Yet housing rose 20%+ in most of these areas over the last five years.

Detail: Housing: Inside the eye of the storm.

0 Interesting Graph

Detail: Interesting Graph

0 New Home Slump May Last Till 2011

The new home market may not return to normal until 2011, a top housing economist has told a meeting of multifamily builders and developers in Hollywood, Fla. David Seiders, chief economist of the National Association of Home Builders, said it will be three or four years before the oversupply of finished but unsold houses is worked off and housing starts move back up to the 1.8-1.9 million-units-a-year trend line. The unsold inventory will be a "pretty heavy drag" on production, he said at the NAHB's Multifamily Pillars of the Industry Conference. As a result, he added, prices will continue to fall. "There's no question there is an oversupply of housing and that homebuyers know it," Mr. Seiders said. "So they are just waiting, and builders have no choice but to cut prices on a cumulative basis." Mr. Seiders told the conference that while the most recent data indicate that the inventory of existing condominiums has fallen, the situation is going to get worse. That sentiment was also voiced by Ron Whitten of Whitten Advisors, Dallas, who predicted that because multifamily structures have a long construction cycle, the excess in the condo sector won't start to burn off until 2009 at the earliest. Mr. Whitten described the condo outlook as "painful." The NAHB can be found online at http://www.nahb.com.

Detail: New Home Slump May Last Till 2011