It's only in subprime it won't impact us!

Really? Rewind to basic Econ 101. Remember supply and demand. We know that when supply overwhelms demand that prices fall. With all this supple on the market where is the demand going to magically come from to prevent prices from dropping. One hundred percent financing for most credit levels is gone entirely. Average credit level buyers are being required to put at least 5-10% down with most lenders. Six months ago if you had a pulse you could get 100% financing. Millions of potential home buyers(greater fools in some markets) are completely out of the game. My honest take is that we will see prices in some hot markets drop 20-30% from their peak over the next 2-3 years. Realise it is a slow inefficient market that takes time to adjust back to reality. With all this gloom and doom comes a ray of hope for the future buyers that can finally get a home at a reasonable price again. Just wait till 2010 to buy that condo in Vegas, OK?

Ticking Time Bombs?

As you can see the last part of the real estate boom was fueled by the riskiest credits. They were late to the party and many of these folks are already upside down on their houses. It won't take much to make them think about turning in the keys. Their payments are adjusting higher, their income is stagnant and their dream of homeownership is becoming a nightmare. Many will walk away.

Heat Map of the Mortgage Meltdown

This is an interesting map. You can see the once hot real estate markets that are facing large increase in late payments. The exception would be La. which is a mess following Katrina and the lack of flood insurance which has caused people to abandon properties. Notice the huge increase in the Inland Empire and Las Vegas. These were the hottest markets in 04-06. These markets have a huge percentage of subprime mortgages that are adjusting.