Unless there is massive buying of RE this spring the supply/demand imbalance could get worse. Pricing lags as Thornberg states. Human psychology abhors cutting losses and instead wants to believe that pricing will return to where the seller wants it to be.

The questions are where will inventory of unsold properties be by late spring and will ARM resets and increased rates force more homeowners to attempt to refinance - what will the rate of change be for refinance activity; will distress sales become more pronounced to significantly increase inventory?

The biggest concern in my mind is the fate of financial institutions balance sheets as they have an incredible exposure to RE assets as a percent of total assets. Another is investor sentiment towards MBS. In a flight to higher marginal yield investors have gorged on MBS/ABS assets over the past 2 years. Any pullback would further pressure mortgage pricing. The real issue here has been unprecedented credit market growth that resulted in many asset markets including RE inflating. I have seen arguments for both acceleration and deceleration in credit growth rates.

Another problem for the RE market is that like any momentum driven market if it tips over it may not be easily arrested through intervention.

The Fed is currently pursuing a policy of increasing both the cost and quantity of money. When they stop raising rates and interest rate differentials to other currencies decline, the dollar is expected to crack. That may not reduce the trade deficit with China much as they have a quasi dollar peg but how would other international investors particularly non-economic actors react to deflating dollar portfolios. How much monetary inflation can the system sustain?

The median prices quoted about Los Angeles are almost certainly extremely misleading. In my area both the high end and the low end have had drops in interest and in price for the same asset. But the low end has had a larger drop in volume - with the result that the median stays unchanged or even goes up.

Interesting article about the IE. Chino Hills has a higher median income than BH.

Inland Empire: Where the L.A. Dream Landed - Los Angeles Times

I can't believe the asking price for these properties in San Diego County. What isn't funny is the amount of condo conversion projects approved by the city and county during the past two years. While renters are pushed into less desirable housing, investors are buying apartment complexes hoping to make a quick buck by converting them into condos.

The problem is that we now have a glut of inventory on the market and condo prices continue to spiral downward. Condos that once sold for $350,000 in my neighborhood linger on the MLS listings at $255,000 or less.

One large apartment complex in my neighborhood can't sell their units. Where's the first-time home buyers? I drive by there on a daily basis and I don't see a mad rush to purchase "The American Dream".

A 150-unit complex (approximatley) converted to condos last year, and as soon as the first phase was sold there were no less than two dozen "For Sale" signs staked on the front lawn. What do I see now? The same collection of signs, but most of them now say "For Rent" because the owners cannot unload them for a profit.

Some places in San Diego will have a gentle decrease in home prices in the future, but I really think there are some areas that will suffer some sort of crash.

BTW this is a great blog and you can count on me to visit often.