Falling 2

Westside prices have been pretty flat the last two years. I've called it a stalemate. For his Carlsbad area Jim the Realtor calls it:

"The Big Freeze-Up is what's happening now. Elements include: 1. Sellers are holding back. ... 2. Buyers are holding back - waiting for lower prices. ..."

We bubble watchers see it as teetering, with demand tapped out, waiting to tip down. Now we're watching it happen.

The demand side is falling from the implosion of subprime lenders. Expansion to Alt-A and prime and a stalling larger economy are next.

Bill Fleckenstein's current summary is subtitled, "As a result of the collapse of the subprime mortgage market, lenders will -- gasp! -- once again require down payments, filling the market with unsold homes and driving down prices."

Lack of first-time buyers then hits the mostly move-up Westside market. Calculated Risk's The Subprime Chain Reaction is an apt illustration.

So far on the supply side inventory has risen, but not on the Westside like unsold builder inventory elsewhere. Rising foreclosures are the other shoe to drop, as happened in 1990-94.

Which is why we need to watch and weigh in on Senator Christoper Dodd's potential legislation: is it really a bailout of lenders at taxpayer expense that would slow the market from returning to normal?

Marketplace gave a good summary Wednesday:

"Dodd, who is seeking his party's 2008 nomination for the White House, said in a statement on Tuesday that he was mulling legislation and other options that would protect consumers from abusive lending practices and allow them to keep their homes."

Bearmaster is very concerned:

"A massive Socialist bailout for subprime borrowers is being cooked up in Congress right now. The very thought of it makes me sick. Now is the time to let Congress know exactly what you think."
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More from the LA Times this morning, "Clinton: Industry 'clearly broken'". A key quote:

"As this crisis worsens, mortgage tsunamis will ravage working-class neighborhoods across the country," warned John Taylor, president of the National Community Reinvestment Coalition. "Sheriffs will be knocking on people's doors only to find keys and furniture left behind."

Taylor called for legislation to create a national rescue fund to support beleaguered borrowers and stricter standards to eliminate predatory lending.

Allowing borrowers to refinance under easier terms "is the most sensible way for Congress and the administration to deal with this problem," ....

What would those "easier terms" be, if borrowers can't afford anything but below market rates and/or negative amortization?