By RYAN TAYLOR

Hardly anyone, it appears, is interested in buying a new house.

The commerce department reported this morning sales of new single family homes decreased by 5.3% in October to a seasonally adjusted annual pace of 433,000. That’s the lowest level since 1991. Sales are down a whopping 40.1% from October 2007 and the total housing supply reached 11.1 months. Most economists consider 6-7 months of supply to be healthy.

The news was not much better for new home values: Prices fell 12.2% to an average price of $272,300, down from $310,000 in October of last year. The month-over-month drop was particularly dramatic, down from $283,700 in September - that’s almost 5% in a single month.

In contrast, the median price fell to just $218,000, down from $234,300 last year. This gap between average and median prices indicates that more cheap homes are selling than expensive ones. Recent data show distressed properties make up almost half of current transactions, as investors try to snap up foreclosures at fire sale prices.

Meanwhile, higher priced homes are sitting on the market. Jumbo loans are increasingly  tough to get and many sellers are unrealistic about asking prices.

While activity nationwide fell steeply, regional data were mixed:

• Northeast: +22.6%
• Midwest: +6%
• South: -6%
• West: -18%

There are a few things that can be derived from these numbers.

First of all, markets that experienced the greatest appreciation from 2002-2005 are continuing to experience significant declines in new home sales. Florida, California, Arizona and Nevada were the boom states for many of the homebuilders at the peak of the market and they are now the most depressed areas.

Since the boom in the new home market was fueled by investors and speculators, homebuilders kept on building. Lax mortgage requirements created a seemingly neverending supply of buyers. Now that demand has dried up due to tighter credit markets and falling prices, builders are left sitting on huge inventories of homes as well as vacant land. Land was cheapest in the exurbs, well outside town, and job losses and a weakening economy are particularly damaging to these fringe developments.

Supply is out of control in the South and the West, but the Northeast and Midwest are experiencing strong buying activity as prices return to more affordable levels. Some areas, like Bloomington, Indiana and Lubbock, Texas are even seeing home prices rise.

Qualified and willing buyers have many homes to choose from right now. Few are opting to live far away from job centers, especially when those markets are the most distressed.

Despite slick marketing campaigns, giveaways and slashed prices, any prospective buyer still faces the very real risk of losing money on a new home starting the day you move in. This is a risk few should be willing to take with the roof over their family’s head.

By AUSTIN NELSON

Existing home sales fell again in October, reversing gains seen in September. The National Association of Realtors, or NAR, released October existing home sales data today, which show decreases in units sold as well as median sale price across the country. The annual price decline was the worst on record, continuing the worst housing slump since  the Great Depression.

Nationally, existing home sales fell a seasonally adjusted 3.1% month-over-month, representing a 1.6% drop from a year ago. In September, sales improved from last fall’s atrocious levels - data the NAR pointed to as a sign of stabilization in the housing market. This assessment appears to have been premature. October’s decline in sales is more in line with the current economic climate of rising unemployment and severe home equity losses.

Sales were down throughout the country:

• Northeast: -1.2% m/m, -9.8% y/y
• Midwest: -6.0% m/m, -9.1% y/y
• South: -3.2% m/m, -10.2% y/y
• West: -1.6% m/m, 37.5% y/y

A few of these numbers are worth singling out.

First, the Midwest was hardest hit, evidencing the fallout from the troubles with the automakers. Second, sales in the West fell, following improvment in September. Again, the NAR had pointed to last month’s gain as an indicator of market health, claiming the West’s markets were showing renewed strength after being the hardest hit to date. The decrease last month shows that this “renewed strength” is typical NAR spin: Even drastic reductions in home prices could not stimulate sales growth in the region.

The figures released on median home sale prices are perhaps even more revealing as to the current state of the housing market.

Nationwide, home prices tumbled 4.2% month-over-month. The largest drop was seen in the West, which saw a dramatic 9.3% decrease. This decline came in the context of a market that had already seen 25% lower home prices than the peak in 2006. Markets in regions that have thus far held up better should expect continued deterioration if they follow a similar trend.

From a “rosier” perspective, this large drop in median price was due at least in part to the paralysis in credit markets over the last two months. The restriction of credit to the private mortgage market dramatically reduced the availability of jumbo loans - which are not backed by the government - preventing buyer’s from bidding on expensive homes.

As a result, the mix of homes sold in October was likely skewed towards the cheaper properties that are available for purchase using loans offered by Fannie Mae, Freddie Mac and the FHA. This concentration of lower priced homes helped push down the broader, median home price data reported by the NAR. As credit markets improve, albeit slowly, this effect should ease pressure on the broad indicators.

Rosier perspective aside, further nationwide declines in home prices and sales should be expected, as  economic conditions continue to erode. However, as the earth-shattering financial events of the past few months play themselves out, it will be important to watch the West as a bellwether of national markets.

The West has led the way in declines thus far, so it is reasonable to look to this area as a proxy for how economic hardships will affect other regional housing markets. Furthermore, as the West has seen the lion’s share of the market pain thus far, signs of true stabilization should appear there first.

Finally, it is important to note that regional economic numbers can conceal even the largest of local trends. Within local Western real estate markets, conditions are widely varied, with some markets only beginning to decline and others beginning to show truly renewed strength.

Only time, and feverishly detailed scrutiny will allow effective market analysis in these unpredictable and volatile times.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Looks like all those option adjustable rate mortgages (ARMs) weren’t such a good idea after all: 1% teaser rates and loans that grow, rather than shrink, over time just aren’t meant for questionable borrowers buying overpriced homes.

Newport Beach-based Downey Savings (DSL), the fifth largest originator of option ARMs, was seized by federal regulators late Friday. The scraps were sold to US Bancorp (USB) for a song, which included almost $10 billion in deposits. Pomona First Federal, another Southern California lender highly levered to the real estate market, was also taken over by Minneapolis-based US Bank.

According to Bloomberg, the 2 failures will cost the FDIC more than $2 billion to clean up. US Bank agreed to assume the first $1.6 billion in losses from the banks’ loan portfolios, but anything above that will be split with the FDIC.

Each of the 5 biggest option ARM writers have now collapsed. Countrywide was purchased by Bank of America (BAC) in July; IndyMac collapsed into the arms of the FDIC just a few weeks later; Washington Mutual was scooped up by JP Morgan (JPM) in September; October saw Wells Fargo (WFC) best Citigroup (C) for the right to buy Wachovia (WB); now Downey is gone.

It didn’t have to end this way.

Traditionally meant for savvy borrowers capable of managing multiple payment options, Washington Mutual is often cited as having invented the option ARM in the early 80s.

The loan gives a borrower a series of payment choices, the lowest of which is so tiny the loan balance increases each month instead of being paid down. ARMs also typically include a teaser rate – sometimes as low as 1% – which can last anywhere from1 month to 5 years.

Ideal for real estate investors, salespeople with choppy income or families hopping between 1 and 2 earners, the flexible payment options and strict underwriting guidelines made option ARMs some of the best performing loans on the market.

But that was then.

As securitization took off, interest rates fell and the housing market heated up, lenders turned these once-safe loans into jet fuel for their ballooning mortgage businesses.

Option ARMs came to epitomize the irresponsible lending that ran rampant during the boom. Lenders abused their ability to qualify borrowers at absurdly low rates, jamming them into homes they could never afford once their mortgage payments rose.

Due to their complexity, mortgage brokers and loan officers rarely bothered to make sure borrowers fully understood the loan terms. A complete explanation would have lasted hours, providing adequate cover for the fraud already so prevalent in the business.

Banks loved option ARMs because accounting rules allowed them to book the fully indexed mortgage payment as income, even if the borrower made the minimum payment each month. That meant a juicy bottom line, even if cash barely trickled in the door.

Mortgage brokers and loan officers loved option ARMs because they could earn fat commissions on loans that were easy to sell - since they never had  to explain them.

And borrowers loved option ARMs because they could buy their dream homes, rationality be damned.

Option ARMs flourished in boom states like California, Florida, Arizona and Nevada since homeowners could simply sell or refinance their way out of any problems as home values kept rising. Delinquencies remained remarkably low, creating years of “historical” data upon which to base assumptions about future loan performance.

Back in New York, Bear Stearns pioneered Wall Street’s foray into Option ARMs. The mortgage gurus at Bear figured out how to turn them into highly profitable mortgage-backed securities.

After that, it was a race to the bottom. Bear, Countrywide and IndyMac literally competed for business based on who could buy the loans faster - and with less scrutiny.

When home prices stopped rising, however, it all came crashing down.

Faced with a rising loan balance, higher monthly payments as teaser periods ran out and falling property values, borrowers were stuck. Defaults rose, losses mounted and banks couldn’t unload the paper without taking significant hits. Instead, they chose to hold on and try to ride it out.

We now know how that strategy ended.

As I have written previously, in the face of unprecedented government intervention, the free market has still managed to punish the mortgage boom’s worst offenders. Not every guilty party will be brought to justice, but the firms that have failed thus far were deserving of their fate.

To be sure, not every employee at the likes of Bear, Lehman, Countrywide and Downey were culpable, but when the dust settles, the weak hands will have been truly cleaned out. Banks that maintained even marginally prudent lending standards are now reaping the benefits.

This fact gives me hope - hope that despite their best efforts, bureaucrats will always lose in their battle against the free market.

By ANDREW JEFFERY

For as bad as things are in the housing market, it’s remarkable that none of the country’s big homebuilders have gone bust. The industry’s resilience is a testament to how much money the firms raked in during the boom.

Just ask guys in charge.

The Wall Street Journal reports many homebuilder CEOs socked away such obscene amounts of cash over the past 5 years that they out-earned their Wall Street counterparts. As profits soared, Toll Brothers (TOL) CEO Robert Toll and his brother Bruce together took home $773 million, while Dwight Schar, chairman of Virginia-based NVR (NVR) earned more than $625 million from stock sales.

By contrast, vilified Countrywide CEO Angelo Mozilo earned a mere $471 million during the same period.

Sitting on huge — but dwindling — stockpiles of cash, big builders like DR Horton (DHI), Lennar (LEN) and Ryland Homes (RYL) have thus far ridden out the bloodletting. According to JPMorgan analyst Michael Rehaut, these 3 may yet see positive cash flow in 2009.

Their smaller rivals, however, may not be so lucky.

Rehaut predicts that Pulte Home (PHM) and KB Home (KBH) could see negative cash flow next year - and some analysts believe 2009 could finally be the year that weaker hands start to fold. Credit protection for Hovnanian (HOV), Standard Pacific (SPF) and Beazer Home (BZH) is trading like the companies’ failure is a foregone conclusion.

Meanwhile, one key characteristic of market bottoms is notably absent: Consolidation.

Just as strong American banks have swallowed up the weak, no meaningful housing market bottom will be found until homebuilders begin to feast on one another.

Let’s face it: We don’t need 10 different multi-billion dollar companies churning out indistinguishable cookie-cutter ”mansions” on tiny lots in cramped subdivisions miles from the nearest grocery store. We’ve got our hands full already, thank you very much.

Yesterday, the Commerce Department said October housing starts registered the lowest reading since 1959. Since just 4 of the 10 builders mentioned in this article existed 50 years ago, it looks like 6 are pretty much dispensable.

By AUSTIN NELSON

The Commerce department released its latest figures for housing starts in the month of October, providing further evidence of an American economy in very poor shape.

Starts for the month came in at a seasonally adjusted annual rate of 791,000, down 4.5% from the previous month. Furthermore, permits for future construction fell 12% to 708,000, indicating that further declines in construction should be expected. The decline is housing starts represented a 38% decrease from last year. Housing starts dropped by 25% from 2006 to 2007, meaning these further declines compound troubles for an already depressed market.

These numbers are the latest in a series of indicators of the continued decline of the U.S. housing market. There are simply not enough qualified buyers to soak up the enormous supply that is being seen nationwide. In the current climate of falling home prices and tighter credit standards, homebuilders cannot attract buyers to purchase their newly constructed homes. With less cash coming in the door, they can’t afford to break ground on new projects.

Drilling down more deeply into the numbers, October’s declines are largely a result of a 31% month-over-month decrease in starts in the Northeast region, where real estate markets have more recently begun to decelerate. This trend is also evidenced by recent surges in pending home sales in the West, while the Northwest is starting to lag.

The data is further evidence the drastic declines of western real estate markets are beginning to spread eastward across the country (Florida notwithstanding). Markets that have previously been strong are now showing signs of weakness and should be expected to continue this trend. Declines in spending within the construction industry are adding drag to the already slowing U.S. economy, which will further decrease the demand for housing.

As we commented yesterday, consolidation in the homebuilder industry isn’t just likely, its inevitable. Just as stronger banks are scooping up their weaker rivals, so too will the “cream” of the homebuilder crop rise to the top of the market.

By RYAN TAYLOR

Home builders aren’t feeling very confident. And for good reason.

The National Association of Home Builders shared their sentiment index for November Tuesday and the reading was the lowest since they began keeping track. The index dropped 5 points from 14 in October to 9 this month - a 10 point drop from a year earlier. The index is based on a survey of 422 residential developers nationwide and a reading under 50 is viewed as negative sentiment.

Unlike many other data points provided by various real estate trade associations, the NAHB index has been significantly more accurate in conveying the general direction of the market. With a confidence number of 9, there’s no way to sugar coat what’s going in the marketplace.

Home values continue to trend down and nobody feels the pain more than the homebuilders, whose top line is tied directly to how much they can sell homes for. Their business has come to a grinding halt and we believe there will be no sustainable bottom in the housing market until the industry consolidates. Their sentiment reinforces our view point: There’s just not enough business for tens of nationwide homebuilders, each building effectively the same product.

NAHB Chairman Sandy Dunn told Bloomberg, “We are in a crisis situation, tremendous economic uncertainties have driven consumers from the housing market, and it’s going to take some major incentives to bring them back.” Indeed.

The NAHB also provided an index for expected sales over the next six months, which remained at 19. While this number reflects negative sentiment, it is markedly more positive than the overall sentiment, largely because many homebuilders still believe the government ongoing financial market bailout will successfully unfreeze the credit markets. Again, the NAHB index gives an indication of the overall market sentiment as most market participants are hoping the near future will be brighter than today.

Frankly, the homebuilder sentiment cannot get much lower than it is right now. However, this doen’t mean it will rise any time soon. When it does, a sustained trend based on fundamentals - not bailouts - will be required to indicate a true bottom to the housing market. Given the vast amount of uncertainty still plaguing the market, its unlikely a meaningful improvement will be seen in the next six months.

The bottom in housing is still a ways off.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Constrained supply, continuous demand and wealth beyond imagining: There’s a reason New York City real estate is the most expensive in the country.

Easy lending, a weak dollar and gobs of Wall Street money pushed already sky-high Manhattan property values into the stratosphere during the housing boom. Now, finally, after the rest of the country has succumbed to the housing crisis, the city that never sleeps could be facing a real-estate crash of its own.

According to Bloomberg, commercial real-estate transactions plummeted more than 60% this year; lending has dried up and buyers have backed off. Despite all the fundamental reasons for New York real estate to remain strong, it’s Pollyanna-ish to believe it will remain an island of calm in an economy deteriorating by the day - especially when the epicenter of the economic calamity can be found at the southern tip of the island.

Tuesday, Toll Brothers (TOL) CEO Robert Toll issued a dour outlook for Manhattan property prices: “Up [till now], New York City was a nice stand-alone, and a beacon, but it has now joined the ranks of the rest of the country… I would expect the financial business in New York to probably lose 100,000 people.”

Toll went on to explain that “The foreign market, which supported in large measure the pricier condos in New York City, is not there in force as it was… what with the euro going down in comparison to the dollar lately, and with their own economic crisis.”

And when New York City real estate goes, it goes big.

The last housing slump in Manhattan began in at the end of 1987 and lasted for nearly 10 years. During that time, according to data compiled by quadlet.com, prices fell 40%. Adjusted for inflation, they tumbled almost 60%.

The New York Metro area is poised for a similar fall. According to the S&P Case/Shiller Home Price Index, home prices have slipped just 6.9% in the last year, compared with 26.7% in the Los Angeles area, 27.3% in San Francisco, and 9.8% in Chicago.

As the housing slump spreads into previously strong markets, these pockets of strength are starting to crack.

The longer credit markets remain under duress — and when firms like Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C) are laying off ever more employees in their ongoing cost-cutting efforts – the deeper the slump is likely to be. A strengthening dollar and floundering economies around the world will continue to keep foreign buyers away.

What goes up, must come down.

By AUSTIN NELSON

The National Association of Realtors (NAR) posted its monthly Pending Home Sales Index for September today, showing a pullback in the gains seen in last month’s report. The index, touted as “a leading indicator of housing activity,” is based on signed housing contracts. These contracts are not counted as sales but are taken as an indication of future sales data.

Specifically, the data show the following:

Month over month (seasonally adjusted)

• US: -4.6%
• Northeast: -16.8%
• Midwest: -0.7%
• South: -7.9%
• West: +3.7%

Year over year (seasonally adjusted)

• US: 1.6%
• Northeast: -9.4%
• Midwest: -3.1%
• South: -11.3%
• West: +39.5%

These monthly declines come following gains in August numbers (US up 6.5%). In last month’s report, the NAR pointed to the monthly figures as a sign of housing market recovery, but this month’s reversion evidences the continuing weakness of the market as a whole.

Now the polyannas at the NAR are choosing to focus instead on the year-over-year increase in the overall market, saying it indicates “we’re still in a broad period of stabilization.” However, the west region has shown a resurgence in sales and contracts are up almost 40% over this time last year, which is single handedly propping up the overall US numbers.

Taking the west out of the picture shows the US housing market as a whole continues to slide, where previously strong markets are beginning to show weakness in the face of continued economic crisis. The west is simply further along in the process of extreme market correction.

It is important to remember that this index should be taken with two very large grains of salt. The first is that these indices are based on housing contracts and do not represent completed sales. Fallout rates remain high, especially amidst a difficult lending environment.

The second, and more important, is that while sales volume may be stabilizing in some areas, sales prices are still unstable. With inventories continuing to hover at near record levels, downward pressure will still be exerted on home values.

Finally, unemployment data released today by the labor department indicate that unemployment is at a 14-year high of 6.5%. There is no reason to expect that this number will go down any time in the near future, as our economy is still locked into a death spiral of bad debt and tight credit.

This isn’t 2006 anymore, people who don’t have jobs don’t buy houses.

By ANDREW JEFFERY

This post first appeared on Minyanville.

With millions of homeowners falling behind on their monthly payments, one in 6 underwater, and countless more struggling to keep up, politicians and banks alike are jumping on the loan modification bandwagon.

A modification – or “mod,” as it’s known in the industry — is simply the bank agreeing to change a borrower’s loan to make it more affordable. Mods usually result in a lower interest rate, principal forgiveness or some combination thereof.

For banks, adjusting loan terms is a way to keep cash coming in the door - even if it’s less than they’d been hoping for when they originally wrote the loan. For troubled borrowers, mods can provide an alternative to default and eventual foreclosure. It’s for these reasons that FDIC Chairman Sheila Bair and big banks like JPMorgan (JPM) and Bank of America (BAC) are aggressively promoting mods as the best way to fix the housing market.

The flood of troubled mortgages has also fostered a cottage industry that caters to distressed borrowers. Some are honest folks aiming to help struggling borrowers by using their mortgage expertise and contacts to negotiate better deals on behalf of their clients.

Others, however, are less upstanding.

According to Mandana Nejad, a real estate attorney and founder of Silver Lining Legal Group, a loan modification firm based in California, troubled borrowers have a lot to be wary of.

“Most loan modification companies are compromised of former lenders and brokers who put homeowners in these horrible loans in the first place,” says Nejad. ”Meanwhile, credit repair and debt consolidation firms are simply out to collect fees, regardless of whether or not they can actually successfully modify a loan.”

Last year, the Bush administration formed HOPE NOW, a government-led effort to get banks and the loan servicers who collect payments on their behalf to step up loan-modification efforts. By most accounts, results were underwhelming, as HOPE NOW counselors often asked for too much, and banks gave too little.

Data show that mods done at the outset of the mortgage crisis ended up in default, despite the lower payments. Without proper screening criteria, mods simply delay the inevitable.

For a mod to work, lenders and borrowers must be able to find common ground. Falling home prices, job losses and massive fraud at the time of origination have exacerbated the challenge of finding new loan terms that make sense for both parties. To complicate matters, if a loan has been packaged into a security, loan servicers are obligated to follow predetermined modification standards set by myriad third-party investors.

Borrowers looking to handle modifications on their own face a maze of legal and bureaucratic complications - not to mention the stress of negotiating to save one’s own home. Nejad tells her clients that anyone can attempt to modify their loan themselves, but doing so requires knowledge of the best strategies for success.

Banks treat mods almost like a fresh loan. In order to get the best deal, borrowers must submit a complete application, write a compelling hardship letter, include verification of income, and often support the home’s current value with an appraisal.

While this is no easy task, troubled borrowers shouldn’t run out and answer the first debt consolidation or mortgage relief advertisement they hear on the radio.

Upstanding modification firms should offer:

• Money back guarantees with no exclusions
• At least one experienced attorney assigned to each case
• Direct access to the borrower’s lender(s)
• No more than a 50% charge up front
• Verifiable success stories, not just web testimonials

Still, successful mods require lenders to take losses. Armed with billions in bailout money, banks are now in a better position to allow their borrowers more affordable loans, even if it means more writedowns and less interest income going forward.

Time will be the true arbiter for the success of Bank of America and JPMorgan’s recent plans, but as pressure mounts to seriously curtail foreclosures, more and more federal money will be thrown at the problem. Other banks are likely to follow suit.

Wells Fargo (WFC) has yet to announce a plan of its own, but – given its recent purchase of Wachovia (WB) and its inheritance of a massive portfolio of California option-ARMs – we shouldn’t have to wait too much longer.

While mods are by no means the magic bullet many are searching for to fix the housing mess, they do offer a way for lenders to retain a cash-generating loan - and borrowers to keep their homes.

By ANDREW JEFFERY

This post first appeared on Minyanville.

The private sector is actively engaging the mortgage crisis with the first broad-based, systemic attempt to prevent foreclosure. Both Bank of America (BAC) and JPMorgan (JPM) are attempting to help hundreds of thousands of troubled homeowners with massive loan modification efforts.

Regulators and bank executives are operating under the assumption that reducing foreclosures will slow record drops in home prices. In turn, this will help stabilize the financial system - and, by extension, the economy as a whole.

This logic isn’t necessarily flawed - but it’s reactive, rather than proactive, which is what’s most needed now.

Most foreclosures are concentrated in regions where homebuilders like Centex (CTX), KB Homes (KBH) and Lennar (LEN) built huge developments, using cheap financing to help fuel speculation and massive over-valuation. These areas, especially those where homes were purchased by lower income buyers, are being decimated by delinquencies and repossessions.

This, however, is widely known. What’s less well-understood is the storm that’s brewing on the horizon: Trouble in the prime mortgage market – where borrowers with good credit are starting to miss payments with alarming frequency — is looming on the horizon.

Recent delinquency data indicates that while defaults on subprime loans are occurring at a less frenetic pace than in recent months, prime borrowers are starting to feel the pinch. In early September – before the financial crisis accelerated in October — the Mortgage Bankers Association released its quarterly delinquency data, concluding,

“The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans. Thus the foreclosure start numbers will likely be increasingly dominated by prime ARM loans.”

There is still a vast misconception that only “subprime” people maxed out credit cards, took out loans they couldn’t afford, and were generally reckless with their personal finances.

This couldn’t be further from the truth.

As the economic slowdown swirls outward into the broader economy, cracks are starting to form in established neighborhoods that have thus far experienced minimal home price depreciation. Many of these areas experienced stratospheric appreciation – just as their subprime neighbors did – but the strong job and stock markets insulated middle- and upper-middle income homeowners from rising interest payments and the slowing economy.

As mortgage underwriting requirements have tightened in recent months, home buying has slowed in these more well-to-do areas. This trend is being masked by spikes in the distressed sales driving broad housing market indicators.

As layoffs continue, homeowners in these areas will be forced to sell for the first time in years. The illiquidity in these markets means it will take just a few such sales to readjust prices dramatically downward. Homeowners that don’t sell by choice, particularly if they’ve accumulated equity in their homes, are apt to be less picky about their price.

Furthermore, it’s likely the recent onslaught of modification programs, tomorrow’s election, and pundits’ continued obsession to call a bottom in housing will encourage buyers to step back into the market. Increased sales transactions – even if they continue to be concentrated in distressed areas – will fuel the perception that the housing market is stabilizing.

This is likely to encourage a fresh round of selling, as anxious homeowners leap to take advantage of “improving” market conditions. This new supply won’t necessarily offset inventory that’s kept off the market by preventing foreclosures on a unit-to-unit basis; instead, the supply will simply crop up in different neighborhoods.

The subprime mortgage crisis may indeed be waning; its final battles are now being aggressively fought in Washington and bank boardrooms across the country. The prime wave, however, is just beginning to crest.