SF BAY AREA HOUSING CRASH CONTINUES?

Great post by 'Patrick' on how the "SF Bay Area Housing Crash Continues." Solid analysis and data which was very interesting to read since Christine and I just bought a new house in Palo Alto. (Crap!) Anyway, I believe "crash" is too strong of a word because the market is still seems to be a seller's market. It is slowly becoming a buyers' market, but the majority of houses still get sold at or above listing. Anyway, here is an excerpt:

1. Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans.

2. Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.

3. 82% of recent Bay Area loans are adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages (ARMs) get adjusted upward. Nationally, about $2 trillion of ARMS will adjust their rates to much higher levels this year and next. (full post)