Let’s get this straight.

Household credit is shrinking…
Profits are shrinking…
Employment is shrinking…
Housing values are shrinking…
The wage base is shrinking…

But the recession is over!

Whoa…how is that possible?

This weekend’s news brought no surprises. For example, the housing picture is still depressing – unless you’re a buyer.

There’s “no bottom in sight” to Florida condo prices, says Barron’s. And Reuters warns that option ARM mortgages “are about to explode.” At least, that’s what the attorney general of the sovereign state of Iowa says. The option gives the homeowner the right to pay only the interest (or in some cases less than the interest) for the first few years. They’re sometimes called IO mortgages (interest only). And now these mortgages, written at the height of the bubble, are beginning to reset to more normal terms. According to Reuters, 128,000 people in Arizona alone will face reset IO mortgages next year.

How much more will these people have to pay? Between 5 and 10 times what they’re paying now. Almost all these homeowners are underwater. They bought at the bubbliest period. How many of them can afford a 400% increase in their mortgage payments? How many of them will be willing to pay?

Not many. That’s why a new wave of foreclosures is coming. And that’s why house prices are likely to keep going down; the supply is going to increase, while the demand (willing and able buyers) will probably…Read more…