Uh-oh!
The Chicago Mercantile Exchange housing-market futures project an average price decline of 5% over the next nine months in Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington. That's not a "soft landing": that's a bubble about to burst explosively.
The anticipated capital loss on a house is part of the cost of ownership. So if potential buyers start figuring in capital losses at the rate of almost 7% per year and adding that to mortage interest, the forgone income from home equity, taxes, insurance, maintenance, and utilities, they're going to figure out that they can't afford to own a place. So will current owners, especially those who start to feel the squeeze when their ARMs reset. It's one thing to stretch yourself to make the payments on a house whose value is soaring; once that value starts sinking, the cost of holding on becomes too high.
It has been said that every unsustainable condition sustains itself for much longer than it has any right to, but once it ends, it ends with a bang.
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