Saturday, December 15, 2007

Getting bleaker by the day

While I feel strongly about the Bay Area housing market becoming a strong one for buyers in the coming years as prices decline sharply in nearly all local markets, I have tried to remain optimistic that the economy will slow slightly, yet remain in tact. But the more reports and statistics I read, the grimmer things look for the financial system overall. Yes, markets run up to an unsustainable level all the time, and then pull back for a correction. Nothing new there. But this latest run-up puts us in uncharted territory - combining 40-year-low interest rates with the loosest underwriting standards in the history of lending. Did you really think Richard and Suzie down the street should have "qualified" for that $1M mortgage when they earn a combined $130k/year? It didn't add up then, and it doesn't add up now. And the fallout is underway. The severity of it is what no one can put their finger on. But many are starting to really get worried about how bad it just may become, including yours truly.

Check out this column by Paul Krugman in this past week's New York Times on why the Fed's latest attempts to rescue us from all this just might not work.

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