Five Reasons Housing Market Headed Down Further

A few years ago all of the economists said that the national housing market would never drop. Last year was the first time in 40 years that it did. And it's going to go down further, especially in markets which are overbuilt, over speculated, or overpriced - California, Nevada, Florida, etc.

There are several reasons why the drop will continue. They include:

• Sub-prime lending woes which will tighten credit across all markets.
• Resets on adjustable rate mortgages (ARMS) will reach a peak in 2007-8 resulting in more foreclosures. This will increase inventory on the market and depress prices.
• Demographics. Aging baby boomers are increasingly selling their suburban homes and moving into apartments or smaller condos.
• Specter of rising interest rates. Interest rates will most likely rise as inflation continues to increase.
• Mentality. The mentality of "housing always goes up" has been broken as it was in 2000-2001 with a rising stock market. Once a bubble like this bursts, it works in reverse as buyers delay purchases in the anticipation that prices will come down. This becomes a self-sustaining prophecy.

Even David Seiders, the chief economist for the National Association of Home Builders seems pretty gloomy:

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