The Ascent of Money

Earlier this week, PBS ran a special two hour program "The Ascent of Money". The program is an excellent overview of current financial crisis placed in context of other historical events. The show includes some excellent commentary and interview clips.

It can be watched online at:
http://www.pbs.org/wnet/ascentofmoney/

Is the Housing Crisis at its apex?

The news cycle continues a downward cycle on housing. Homeowners can not open a newspaper, turn on the news, or browse online without immediately getting hit with the latest negative housing commentary.

On the front page today, US foreclosure filings surge 48 percent in May. The continuous stream of downbeat real estate news may be a sign that the housing market has finally hit the bottom. In the same way, that the endless stream of news on how to get rich speculating on real estate in 2005 marked the real estate market peak. Interestingly, the spin today is how to get wealthy buying real estate foreclosures.

There is continuing statistical evidence that indicates that housing has turned the corner. In many markets, the number of days on the market is falling, along with the amount of unsold inventory. Coupled with the rate of price decreases slowing as buyers and sellers come into alignment of the new expectations regarding the proper value for a house now that the speculative bubble has burst.

The mortgage situation is also easing, as banks have returned to traditional lending standards. Financial institutions now have an improved comfort level for underwriting and re-selling proper quality loans – the credit crunch is slowly moderating.

The summer of 2008 may mark the actual bottom of the real estate plunge on a national level; some markets will face further price correction. However the path out of the crisis across the country will still be lengthy and painful, extending well into 2009.

Countrywide Chairman tells Homeowners they are Disgusting

Countrywide Financial Corp. Chairman Angelo Mozilo reaped $132 million as the mortgage lender got hammered in 2007. It appears this wad of cash has not made him appreciative of his customers; he views homeowners as “disgusting”.

Apparently Mozilo does not know the difference between the reply and forward buttons, setting the stage to send an absurd email response to a homeowner. It does reveal the contempt that the executive holds for homeowners seeking help with unaffordable adjustable-rate mortgages, loans that were pressed on them due to Countrywide’s inappropriate business practices.

As outlined by the government and consumer groups, the mortgage giant has a history of focusing on loans that generate the maximum fees even if they were totally unsuitable for the homeowners, while not properly explaining the terms of the loan. Furthermore many loan agents, as shown in this case once again, made “promises” about refinancing and other loan attributes that would defined in most courts as fraud.

Despite these mortgage companies claiming in Washington that they are taking steps to alleviate the pain of homeowners; the email exchange underlines the stark reality that the mortgage giants actually could give less than two hoots about these mortgage-holders.

Mozilo on distressed borrower's appeal for help: "disgusting"

Countrywide Financial Chairman Angelo Mozilo's e-mail sets off a furor

Recession Proof Cities: Raleigh makes the list

With over 40,000 people moving to the RTP area each year, the Raleigh area has made another list - America's Recession-Proof Cities. Charlotte (NC) also made the top 10 list, as well as many cities in Texas.

Surprising many, San Jose (CA) is also on the recession proof city list due to the strength of the Silicon Valley economy. However Forbes offered the following note of caution regarding San Jose.

And in the San Jose area, the median home sale price is over $830,000. That's 11% higher than it was in the fourth quarter of 2006, helping to land the area at No. 4 on our list. Problem is, that growth has since cooled, and it remains to be seen whether pricey homes coupled with a 5.3% unemployment rate will cause trouble for homeowners this year.

Quick Takes: Is the Financial Crunch over? More heads rolling

A slew of articles have appeared recently that the housing-driven credit crunch is over. Merrill Lynch’s Thain is the latest executive to make this claim. Are the financials about to recover or are these characters simply “talking their book” – to state it in Wall Street terms? Thain states that the upcoming losses at banks will be reduced moving forward even though the consumer will exert a drag on the U.S. economy over the next 6-12 months.

Coupled with the Wall Street Journal headline “The Housing Crisis Is Over” – it provides investors with hope that the worst may be in the rear view mirror. Housing may have hit the bottom according to some analysts. “A bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.”

Of course there are pundits who take the other side of the coin, presenting an outlook for housing that shows another 20-30% drop in prices nationwide. This will be coupled with a drop in consumer spending that drives the next wave of the credit crunch further causing chaos at the banks.

Most likely the reality over the next couple years will be situated between the two extremes of rosy forecasts and dismal down-siders. Despite the recent recovery of financial stocks, most investors do not feel confident buying into this sector – most believing that the bounce-back is temporary.

Heads Rolling

The boxes continue to be dropped off in corner offices. The president of bond-rating firm, Moodys, has been sent packing. Brian Clarkson, is viewed as a casualty in the complicity of credit-rating firms in the sub-prime meltdown.

“The resignation comes amid heightened scrutiny by investors, regulators and lawmakers into the role of Moody's and its rivals in the meltdown of complex mortgage-related securities, many of which received top triple-A ratings from the credit raters, only to be downgraded sharply in the past 12 months when the housing downturn worsened.”

Home Prices: Down 13.3%

In case anyone is not a believer, the statistics firmly demonstrate that home prices not only go up. They can also go down – sharply – in short periods of time. The median price of a home sold in March dropped 13.3 percent when compared to one year ago. This is one of the largest declines ever, exceeding even the 14.4 percent drop in July 1970 when the U.S. was buried under high interest rates and stagflation.

The sales of new homes in March dropped to the lowest level in 16 ½ years, the slowest pace since 1991. The early part of the 90s was not merely memorable for outlandish music videos on MTV but for the S&L crisis that left many sub-divisions incomplete and housing market in absolute chaos. Having a housing market with lower sales then one of the worst real estate periods in recent memory can not be considered a positive sign. Not even NAR (National Association of Realtors) could spin this as good news.

New home sales plunge to lowest level in 16 1/2 years
New home sales plunge to lowest level in 16 1/2 years, prices drop by largest amount in 38 years

Triangle Housing Update

When driving around town, the pull-back in the Triangle real estate market is obvious to the casual observer. Houses sit on the market for many months and are still not sold. Land that developers planned to use for the next state of sub-divisions suddenly has large for-sale placards. Some developments have come to a screeching halt with no further construction

Most of the builders and real estate agents are absolutely glum about the local prospects. Many are fleeing to pursue other career opportunities.

Still the local real-estate organizations cheerlead, publicizing that the Triangle market is better off than other regions. Considering the state of real estate nationally, this is merely the equivalent of stating that being trampled by a wildebeest is preferable to being squashed by a hippo.

An N&O article today outlined that sales of the Triangle's existing homes fell for the eighth consecutive month in February. The local foreclosure rate has sky-rocketed while unemployment is now at 5%. Despite over 40,000 people coming to the region each year, most of the new-comers have not been able to unload their existing homes in other markets.

Despite the rise in inventory and drop in sales, the average price has managed to rise 3.1% from a year ago. Despite the attempts of the real estate industry to tout this, the news is actually dismal. Each month the average price rise decreases; shortly the figures will turn negative based on any type of statistical evaluation.

Local realtors are hoping for a strong spring/summer selling season, any type of evaluation of the market over time demonstrates that it is likely that their hopes will be crushed. There are no meaningful figures that indicate the local real estate market will improve during 2008. While the Triangle may not be as negatively impacted as other speculative markets, by no means is the region immune from real estate downside.

Sales of Triangle homes off again

Quick Takes: The Big “R’, California Dreaming

The latest survey shows that 71% of economists believe that the U.S. economy has slipped into recession. Commerce Department shows a deep drop in retail sales in February with an associated drop in consumer confidence. The situation has only continued to deteriorate in March, with faltering payrolls and increasing unemployment demonstrating that the economy has continued to contract.

As a backdrop to this news, the real estate situation in California has continued its decline with no improvement in sight. The median prices continued to drop across the state with Southern California leading with a slide of 17.9%. This does not mean that the Silicon Valley area fared much better; in the nine counties of the San Francisco Bay Area, the median price fell 11.6 percent. Home sales volume continues to hit record lows.

So much for “California Dreaming” - The entire situation is a harsh lesson to many home-owners who thought that housing prices only go up, or that the maximum downside could never be more than 10%. The entire region is likely to see housing price drops of nearly 30% before the end of 2008.

Home prices plunge across California

So how many homeowners will be underwater?

Sometimes you have to wonder if press headlines indicate the bottom of the economic downside in some sort of contrary manner. The most recent incarnation, It's So Much Worse Than You Think, actually focuses on the number of homeowners that will have negative equity as housing prices continue to fall.

As outlined in the article, currently housing prices are down 8.4% placing 13.5% of homeowners in a situation where they have negative equity in their homes. The downside of housing prices is likely to reach 15% without a recession and 30% with a recession. A 30% decrease in housing prices would leave 39% of U.S. homeowners with negative equity in their homes.

Owning more money than the home is worth; many of these homeowners may simply walk away from their homes. We have seen this occur with local housing crashes in the past, such as Texas during the oil bust. Now the table is set for a nationwide incarnation of this scenario.

This of course will place the banks under additional stress that normally plan for a mere 1 or 2% default rate; rather than the 5 or 6% default rate from prime loans which would be seen with this type of recession.

On one hand the article may be on target that vicious cycle of additional housing driven downside remains; on the other hand it could serve as a signal that it is time to start buying rental housing on the cheap.

The local bank downgrades: Commercial loans cited as culprit

The crisis that is about to overwhelm many local banks was discussed recently (see Just how bad is the situation with local banks?). Community and regional banks are facing significant exposure with their commercial real estate portfolios. Many of the loans to real estate developers and commercial builders are starting to turn sour reflecting the problems with overall market. This is turn has started a rush by the rating agencies to downgrade many of these banks as their financial strength weakens.

Moody’s downgraded a number of regional and community banks over the past week. The ratings agency has cut the outlooks of Associated Banc-Corp (ASBC), Associated Bank NA, Bank of Nevada, Susquehanna Bancshares Inc (SUSQ), Western Alliance Bancorporation (WAL) to negative from stable.

Additionally, the ratings agency cut the financial strength rating of Amegy Bank National Association, First Commercial Bank (FCHI.PK), and Nevada State Bank to 'C+' from 'B-'. While placing Fulton Financial Corp (FULT) rating under review for possible downgrade.

This cycle of downgrades, reflecting the likelihood that commercial real estate loans will not be repaid, is expected to increase over the upcoming months. A good number of these banks will be forced to merge or be bailed out by the FDIC.

Once again, it is very important at this time to pay attention to the financial rating of the institution where you perform your banking. Nothing is more painful than having your money locked up and unavailable for eight months while they FDIC “bails out” your bank or to having all your money above the FDIC insurance limit magically disappear forever.

Quick Takes: UK Real Estate Update, Consumers Stall, Vista Anyone?

UK Real Estate Update
Real Estate issues are not only a prevalent issue in the U.S., home prices in the United Kingdom fell for the fourth straight month in February, dropping 0.5% from January. Mortgage approval rates remain at the lowest level in nine years as recent rate cuts have not been passed along to mortgage consumers; factors that are likely to cause the continued decline of the housing market.

Similar to the U.S., the U.K. housing boom “powered consumer spending over the past decade”; the decline in real estate prices is likely to cause further consumer economic fallout.

U.K. House Prices Fall in Worst Streak Since 2000

Consumer Spending Stalls
The stall in consumer spending is a likely sign that a recession is in the outlook. Consumer spending accounts for over two-thirds of the economy in the U.S.; the second month of a flat reading is not a positive sign.

Consumer spending stalls in January
Data seen raising new concerns about a possible recession
http://www.msnbc.msn.com/id/23406764/

Who wants this Operating System?

Microsoft plans to cut prices of its Windows Vista operating system with the Service Pack 1 release. Vista has not been well received and still accounts for less than 10% of the installed Windows operating systems. Similar to many others, after experiencing Vista on a PC purchased for my family – my first step was to install Windows XP.

Fortunately, Microsoft will continue to sell Windows XP until June 2008, delaying a forced transition to Vista. Despite hyping the figure of 100 million licenses sold of Vista (many of them uninstalled), and pointing to the strong earnings component related to these sales (many charged for and not used on new pre-purchased systems) – analysts need to start questioning the actual relevance of Vista and if Microsoft will take the necessary measures beyond a price reduction to improve actual uptake.

Microsoft cuts Vista prices to urge upgrades

Quick Takes: Student Loan Auction Rate, CDS, and Condo Market

Auction Rate

The most immediate fall-out of the Auction Rate seize up this past week (see More Credit Turmoil: The Muni Auction Rate market freezes) was the student loan market. The failure left North Carolina and many other states scrambling to find new financing. More than two-thirds of our state’s $3.3 billion in student loans were financed using the auctions. It comes as a shock to many parents that the failure of this structured market may mean that no funding will be available to send junior to college this year. This is another example of the poor risk modeling and greed on Wall Street impacting Main Street.

The News and Observer article “Lenders need new financing: Student-loan providers scramble as key credit market fails” provided some very pertinent observations about the situation.

"The whole notion of a failed auction when I started 10 or 11 years ago was unthinkable," Brooks said. "The same could be said three weeks ago. I'm not sure when -- or if -- they are coming back."

The failure has nothing to do with the authority's credit rating or the value of its assets. Both are strong.

"But it speaks directly to people's confidence and trust in the credit markets," said UNC-Charlotte finance professor Tony Plath.

The failed auction stung some agencies harder than others.

The Michigan Higher Education Student Loan Authority announced Tuesday that it would suspend one of its lending programs after the auctions failed.

The auction rate market situation is not likely to improve in the upcoming months. The obvious result is the suspension of many student loan programs across the majority of states as government entities scramble to obtain new funding sources – the crucial problem being that most of these alternative sources will be at higher cost. This will immediately reduce the amount of available loan money and raise the costs for the students.

Credit Default Swaps

A new word for 2007 was subprime, for 2008 is will be Credit Default Swaps as this market implodes in a manner that makes subprime appear to be minor league. At least this is the growing opinion of many economists and media articles. The latest addition was the Arcane Market Is Next to Face Big Credit Test overview from the New York Times on Sunday. The article points out that the unregulated CDS market is enormous at $45.5 trillion in size, double the size of the stock market.

Worst of all the market is crumbling as participants are finding that many of the players will have trouble paying their obligations. As the default rate rises in the bond market, the CDS market will come under increasing pressure. Similar to subprime, a higher level of risk was never really priced into these structured CDS products. This likely sets the table for another credit market fiasco.

Downtown Condo Market

A mere few months ago, the media was hyping the downtown Condo market as resilient in a down real estate market. Outlining the high prices and large numbers of pre-sold units, the industry extrapolated that this trend would continue leading to more projects being planned. Fast forward to today’s business headline “Condo market goes sour: Demand for downtown units falls victim to troubles in home-sales market”

Developers are busy reducing the number of proposed units, cancelling projects, offering incentives, and trying to assist buyers with financing in a tightening credit market. It is starting look like the market for these over-priced units in downtown Raleigh have gone from gold mine to dust bowl.

Home Prices Fall and Foreclosures Achieve New Heights

Investors only have to tune into the evening news to understand that foreclosures are reaching new dismal highs while home prices are quickly diving. A couple of new figures came out recently which reinforce how badly the housing market struggled in the last quarter of 2007.

The National Association of Realtors announced that home prices fell in 77 U.S. Metro areas in the fourth quarter. “The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the Chicago-based realtors group said.” Hard to find any upside with this type of report, nor did NAR attempt to provide any. The situation facing the real estate market in 2008 is even more bleak.

The Rust and Sun Belt cities lead the U.S. in ‘07 foreclosures according the RealtyTrac. Of the 100 largest U.S. cities surveyed, 86 reported higher foreclosure rates. Naturally the areas in the country such as California and Florida that lead the country in the real estate boom have some of the highest rates in the bust. The other side of the coin is that cities facing overall economic problems like Detroit landed top spots. Many of the top cities have more than 4% of their homes in foreclosure.

Certainly housing situation is not going to improve much during the first six months of 2008. The slump is likely to cause further turmoil at new inflection points in the economy as the credit debacle flows over into the consumer and auto loan market. Many businesses as diverse as local banks to landscaping firms are likely to be vulnerable in 2008.

Local Banks: Time to Short

The recent subprime CDO plague has clearly cut down the stock prices of major banks. However it is the small local financial institutions that have the least financial strength to weather the storm. Many of these smaller banks did not get caught up in the residential loan fiasco because they were not focused on this market. However, the other shoe is about to fall. Many of these local institutions focused their lending activities on commercial real estate development. A good number of these loans to sub-division developers, builders, and commercial property developers are about to turn sour, leaving these small banks holding the bag.

A number of these local banks have holding companies that are traded on the OTC Bulletin Board and do not generate significant analyst coverage. Naturally these banks are lightly traded, many with only a few thousand shares in average volume per day. A candidate list of potentially under-performing stocks over the upcoming twelve months should include banks with the following attributes:

• The bank must do lending in a state or market under tremendous downside housing pressure and significant new development over the past few years (e.g. California, Florida, Las Vegas, etc.).
• The bank must not be more than 25% off of its highs over the past year – need downside price space.
• The bank must have a D or below safety rating.

Fortunately there is a free resource online that allows investors to screen on the safety ratings of banks. The Street.com screener can be found here.

Simply tab over to the Banks and Thrifts tab at the top. Select a state such as California and the Rating to be D (weak) or lower. In this example a list of 99 banks in California are produced. When a bank in the results is highlighted than the full rating summary report for the bank can be downloaded in a link to the right.

Not all banks are publicly traded however. So an investor must analyze these results against the banks that offer holding company stocks to the investors on the exchanges. At least two banks of the first 20 on the list generated for California trade on the OTC – Alliance Bank (ABNS.OB) and Bank or Santa Clarita (BSCA.OB). While these two banks pass two of the criteria above, they flunk the third in that they are already more than 25% off their peaks. Many of the candidates may face this issue because the entire financial sector has tanked in the market. The basic idea is to search for local banks that have unexpectedly held up in price despite their safety ratings indicating that they should be in the flusher; these are candidates that may still have significant downside potential and are worth investigating as shorts.

After generating a list of possibly candidates the next step is to read their filing information to determine the level of outstanding commercial loans associated with real estate. The concept is to hunt for the banks that have the largest exposure.

As commercial loans sour, the local banks with large exposure and low financial safety ratings are likely to flounder. A good number of these banks are probably excellent short candidates over the coming months.

Disclosure: The author does not have a position in any of the equities mentioned in this article. The information provided does not constitute a solicitation to buy, or an offer to sell securities.

Wrap Up: A Wild Week

An astounding week on Wall Street with a wild roller-coaster ride in the market. The market started deeply down on Tuesday following significant drops in world markets on Monday, which was the MLK holiday in the U.S. By the end of the week, the markets have recovered most of their losses while rising in significant counter-trend rallies on Tuesday and Wednesday.

The business news flow this week was no less shocking; starting with the story about the lack of risk control at Societe Generale. This French bank revealed that a low level trader was able to cost the firm $7.2 Billion in unauthorized bets on stock markets. More interesting, the trader did not make any money off of his actions.

In the meantime, the 31-year-old employee at the center of the situation, Jerome Kerviel, has magically disappeared according to most press reports. Some reports claim he has fled while others state his lawyers say he will be available for questioning.

The major banks and brokerages have constantly harped on how they have improved risk control over time. Once again this appears to be a fantasy! First the CDO / SIV crisis, and now a situation where a low-level employee has perpetuated the largest financial fraud in history by an individual.

The absurdity of the situation has led many pundits to question if Societe Generale is being truthful about the situation, or if this “news” has just been cooked up to cover their CDO losses. It seems ludicrous that an employee would be able to by-pass even basic risk control systems at this level of magnitude. Especially since the sell-off earlier this week in European markets is now being tagged to the need of Societe Generale to exit these unauthorized positions.

In the meantime, the housing situation in the U.S. does not appear to be improving. Two key reports underlined the dismal condition of real estate. The sales of single family homes dropped by the largest amount in 25 years. The median price of a home fell for the first time in four decades, dropping 1.8% to $217K. The entire country has not experienced a decline in home prices for an entire year since the Great Depression.

The outlook is not pretty; the housing bottom is not likely to be reached for many months. In some reports, prices nationwide will fall by another 5%. This implies that the drop in hot speculative markets will be much greater. Lasting Housing Woes Paint a Grim Economic Picture

Hoping to improve the economy, law makers in Washington implemented a stimulus plan that will provide most tax payers an additional $600 to $1200 in their refund. The hope is that people will spend this money and stimulate the economy rather than simply paying off debt or shoving it into their bank account. The concept seems counter-intuitive, but with a consumption driven economy it is understandable. Some press questions if the American consumer is too strapped to spend.

Offsetting the news from Washington, the unemployment rate continues to increase. The major banks were at the front of the employment press; Citi announcing more cuts, Goldman Sach’s about to axe 1000, Morgan Stanley trimming another 1000, and the expectation that Bank of America & others will add to this trend.

The Bond insurance situation continues to play out with regulators from New York and other states urging that institutions rescue these firms which insure most municipal bonds. Most states are very concerned because their ratings on existing bonds will dive and cost to borrow additionally money will rise immediately when these insurers become insolvent. Wilbur Ross may be stepping up to purchase Ambac (ABK). MBIA Inc (MBI) appears to be treading water hoping for a deal of some type. ACA Capital Holdings (ACAH.PK) has a mere month to live after receiving a forbearance extension to February 19th from its creditors.

The question remains if the market has arrived at the bottom. Stock markets normally approach the bottom in a very volatile manner, with many violent upside counter-rallies over a period of months. Usually the bottom is re-tested multiple times before a new significant uptrend starts. This can be seen by studying the charts of past troughs in the markets. This also implies that the probability is that this week has not been the local bottom for the market; in light of weakening economic conditions there will be a further slide over the upcoming months. Only time will tell how the entire situation plays out.

In the meantime, investors should focus on the long term with their retirement savings and not attempt to trade the market. Maintain a properly diversified portfolio and understand that the stock market moves in cycles… and in due time will bounce back.

Triangle Housing Bucks National Trend

As of the third quarter, the home prices in the Triangle were up over 7% from the previous year. The final tally for 2007 in the region is expected to be a price rise of at least 5% year over year. While the housing rise has cooled in the most recent quarter, the Triangle area has matched the trend of neighboring Charlotte in bucking the nationwide real estate price drop.

A recent Fortune magazine article predicted that the RTP area housing prices will likely drop 14.7% over the next five years based on rent to price ratios. However there is an expectation that the large number of people moving to the region to take advantage of the strong job market will buoy the local housing picture. Many real estate specialists are expecting 2008 to be flat in the Triangle, but this is still a much better outlook than most metro areas in the nation that are expecting significant drops in the year ahead.

Prices holding up in Triangle

Time to Ask for a Reassessment?

For homeowners who purchased at recent peaks, it may be time to ask your local property tax authority for a reassessment. This is especially true for homes in very pricey areas such as Santa Clara County in California, as well as locations where home prices have tumbled greatly such as Florida. Most communities have a different appeals process, the best way to find out how the reassessment procedure works in your area is to call the local government office. A number of homeowners land up saving hundreds if not thousands in property taxes simply by filing some appeals paperwork.

Taxes Are Reassessed in Housing Slump
http://www.nytimes.com/2007/12/23/us/23tax.html?_r=1&th&emc=th&oref=slogin

More: Avoid Foreclosure Scams

Mortgage scams are not only prevalent in rising real estate markets, but are common in falling markets as owners are desperate to avoid foreclosure. Freddie Mac has come out with a video about foreclosure scams that I would urge folks to watch.


Another complete summary of the many different types of mortgage fraud can be found here:
Let Me Count The Ways
http://alamedalearning.com/reality/2007/06/08/let-me-count-the-ways/

I would urge everyone to be knowledgeable and avoid these scams. You don't even have to be financially troubled for solicitations to start arriving via mail and phone for these scams. Know what to look for and ditch the scammers.

Avoid Foreclosure Scams

In the current dismal real estate market, there are many foreclosure scams making an appearance. Most of these scams promise homeowners that they can prevent foreclosure if they are late on their payments. The reality is that most of these “plans” are simply scams whose primary purpose is to take advantage of the homeowner and rip them off.

A recent articles came out that provides good information on how to avoid these scams. I would urge anyone facing late payments on their mortgage (or is trying to help someone in this position) to read this article. Even those up to date on their mortgages will benefit from it, especially the advice to watch out for unsolicited letters appearing to be from a division of your mortgage company demanding additional money.

How to Spot a Foreclosure Rescue Scam
http://finance.yahoo.com/expert/article/millionaire/58089

Where is the Real Estate Bottom?

Most falling real estate markets follow a standard historical pattern. The first year is the year of the slide, while the bottom is established during the second year. Clearly 2007 established itself as the year of the slide which means the bottom for most local markets should occur in 2008.

This is good news for many homeowners; if they can just make it through 2008 then they are likely to start seeing their home prices increase in 2009. However for owners that must sell during the upcoming year, the real estate market experience is likely to be even more painful than those who are marketing their homes today.

A good number of seasoned real estate investors are hunting for the market bottom; many expect to find it during 2008 and start purchasing select properties at low prices. However these types of experts represent a minority of the overall set of speculators, but they normally serve as a great benchmark for establishing the market trough. When homeowners start seeing articles in the press highlighting these type of investors than they can start to fell more comfortable about their real estate prospects. Nonetheless owners should understand that the recovery from the bottom is normally slow and requires many years. Usually it takes eight years for a real estate market to recover to its pre-collapse prices; which is still bad news for those who purchased at the peak.

Will Home Prices Hit Bottom in 2008? Yes, But . . .
http://finance.yahoo.com/real-estate/article/104024/Will-Home-Prices-Hit-Bottom-in-2008-Yes-But