Here in California, you can feel the panic. It is beginning to look like housing prices are not going to drop substantially, except in a few specific localities.
And why should they? Despite the building frenzy between 2001 and 2006, there is an overall shortage of housing in California. Right now it is hard to find rentals, much less reasonable rentals. Plenty of houses are for sale, but the prices can't be said to be bargains.
I know many couples around the state who have high incomes ($50,000 per year or higher), live in apartments, and have been hoping to buy a house for years. 2007 finally seemed like the year of the promised decreases in house prices. Some individual houses for resale have lowered their asking prices, but statistics for April show that the median statewide housing price was flat compared to year-earlier.
If housing prices were to drop, buyers would step in. As people stop hoping to save by waiting for a drop, the market overhang will be absorbed.
Since prices did not drop, even most of the fools who bought in 2006 have not lost any money.
There are some exceptions, mostly large housing developments built in 2006 in the outer reaches of the Central Valley.
All this fits into a pretty pleasant macroeconomic picture. Jobs are plentiful. For those who are steady workers and have saved a down payment, 30 year interest rates are historically low, near 6%. Having heard horror stories of people who bought housing on at adjustable rates, sane people are thinking about how nice steady monthly interest payments would work out over 30 years.
It does not appear that things are much worse in the United States as a whole. Immigrants, legal and illegal, create a constant push into the housing market. Some areas like Florida were severely overbuilt, and some cities have lost jobs and will continue to have weak housing markets as a result. But already the New York City and Boston housing markets are heading back up.
As to the subprime mortgage market, it is a problem for the fools who did the lending, but its impact on the California market will be marginal at best. There are people with real money who want those homes, especially if they can get them at even the slightest of discounts.
The only thing that could substantially depress prices in California as a whole is a recession. But with employment solid, consumer spending okay, and the rest of the world's economies booming, that is an unlikely possibility.
Note to the Dow is at record levels. That means some people who were worried about the value of their portfolios back in 2002 (even if they did not over invest in Internet stocks) are not so worried.
In a way it is too bad. Housing is astonishingly expensive in California. It is hard for people to get started just out of college, or if they are spendthrifts. But those have always been the choices: spend or save and invest. A job, few years of saving, a down, and a thirty year mortgage: that was a formula for success 40 years ago, and it is still a formula for success.