A Housing Crisis Checklist
3. Lenders getting cold feet: Tightening credit standards may help the market over the long run, but they are crimping buyers' ability to get in the game. Moreover, the disaster in the subprime mortgage market has all but dried up demand for subprime-backed bonds and is even making investors in other, less-risky mortgage-backed securities skittish. The likely result: less liquidity in the market and, if things get worse, a full-blown credit crunch that could dry up key sources of home-lending dollars.
4. Houses still unaffordable: Despite falling nationally by about 4 percent since their price peak in 2006, houses in many parts of the country remain less affordable than at any time in the past 15 years. Although personal incomes are rising in most areas, it would take three or more years of flat house prices for affordability to get back to where it was before the recent boom—either that or an additional 5 percent haircut on the median price of a home.
5. Not-so-prime borrowers (or lenders): The wild card still to play out in the housing market is whether all those prime loans made during the heyday of the easy-money boom are as first rate as many mortgage brokers led lenders to believe. News that Countrywide Financial—long regarded as a lending bellwether—has suffered increasing defaults by its prime borrowers is a sign that shoddy lending standards (and outright fraud) have put too much house in the hands of people with too little money to pay the mortgage.
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