Some Good Thoughts About Future Housing Markets Here!

Implications: I like three of the points made here best.  Housing prices have been increasing faster than incomes, the sub-prime market has never been tested in a down housing market and if the market becomes an auction market, prices can fall sharply.  I think these are the keys to further price and activity declines in the market.

Analysis:

Reviewing new housing sales across the country, the areas where new jobs are being created are the most unaffordable.  California, Nevada and Arizona are out-of-sight.  Florida is messed up by past hurricanes, low end jobs and heavy investor activity.  Look for cranes in the sky here for many projects for awhile.  New York City and the eastern seaboard metroplex are just a short percentage down from California.  Other areas of the country have low job creation, low housing starts and low demand, therefore low if any appreciation.  Homeowners and builders have reasons they must sell and over time those units will add to the existing inventory and may depress prices.

The sub-prime pools of yesterday will not attract investors to fund those most needing capital.  The conforming market is not likely to stretch downward with the difficulties facing FNMA.  Liquidity issues will knock out those whose credit cannot sustain a high affordability ratio.  Try a lesser buyer pool as a result.  Or look for lower prices to compensate.

The pressure adds up when the standing inventory reaches critical mass and an auction system occurs which depresses markets rapidly.  The institutions with an REO problem lead the way so they can take their bath at current levels and pursue profitable lending arenas.  Default percentages are increasing and therefore bulk is being amassed in institutional portfolios.  If and when the tipping point is reached, expect more extreme price reductions.