Back at the height of the real-estate boom in 2004-2005, I used to count the columns of homes for sale in the local newspaper. It provided me with a way to see how much was on the market in my town. There were always between 6-9 columns, usually 9 when the market was a bit slower.

I hadn't done it for awhile and finally took out the Sunday paper and gave it a count today. I expected to find more listings and more columns. Imagine how shocked I was when there were only 3 ½ columns. Where were all of the homes? I thought unsold inventory was climbing rapidly.

I'm still a bit surprised but I offer several possible theories:

• Sellers have taken their properties off the market instead of selling at below their asking price.
• Rates have gone up and most people are content to stay in their homes which they purchased or refinanced at a low rate.
• The housing slowdown is not as bad as the press is making it out to be.
• I live in the Northeast in a dense area and maybe this is not representative.

Of course, this is just one data point. Anyone else have any thoughts?

The recent credit crunch caused by the sub-prime mortgage meltdown is causing many analysts to speculate that the Fed will have to cut rates shortly in order to inject additional liquidity into the financial markets.

Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

Already today, the Fed took the stop of injecting liquidity into the market by adding $38 billion dollars into the market via the repurchase of mortgage backed securities.

The stock market rose slightly today on tbe Fed's intervention, capping a week of volatility and gyrations in both directions. Key highlights include:

• Spanish bank BNP Paribas said it was freezing three investment funds due to losses in US housing loans.
• Countrywide financial said "unprecedented disruptions" in financial markets could impact its condition.
• Several prominent hedge funds and investment banks have seen losses accelerate.

For more coverage on this:

Stocks end turbulent week with small drop - Boston.com

Stocks Are Volatile After Global Sell-Off - NY Times

U.S. Stocks Recover From 213-Point Decline in Dow Average; S&P 500 Climbs - Bloomberg.com

Fear on Wall Street - Fortune.com

A Wild Friday on Wall Street - BusinessWeek

Impact of Mortgage Crisis Spreading - WSJ

The Boston Globe ran a good article on the spreading impact of the tightening of mortgage credit. Residents in Massachusetts, even those with good credit, are having a much harder time getting jumbo loans or are getting loans are significantly higher rates. The rate on jumbo loans increased by 75 basis points (3/4 of a percent) in the last week. Jumbo loans are loans above the $417,000 purchasing limit of Fannie Mae and Freddie Mac. Lenders have become increasingly concerned about mortgages that they can't sell off to either of these agencies.

Another part of the article that I found interesting was where it discussed one homebuyer who was having trouble getting a home. It mentioned that he was surprised even though he only planned to put down 5% of the purchase price. Is it just me or does that seem like a paltry payment? Wouldn't he have to pay PMI? It seems to me that if you want to buy a home you should be willing to put down at least 10% if not 20% of its value.

There's been a lot of talk on this site and across the Web about how the drop in housing prices is going to sink the economy. The common theory is that rising rates on variable rates loans are putting pressure on many homeowners who can no longer unload their homes because prices have fallen. As a result, many are going into default, causing the value of the securitized sub-prime loans to fall. This has wiped out several hedge funds and cast a pall over the sub-prime market in general.

Many believe the damage will spread out of the sub-prime market as housing prices continue to drop and interest rates rise. I see several problems with this theory:

1. The economy is strong and the unemployment rate is low. Most people who are employed do not default on their homes. They will give up everything else before they lose their house. As a result, while defaults are high compared to recent history, don't expect them to rise much higher unless the unemployment picture changes.
2. Interest rates are relatively stable and if anything may drop. Certainly if the economy weakens and unemployment rises, rates will drop. This will help to boost real-estate and allow many variable rate mortgage holders to refinance.
3. The drop in prices only impacts a small percentage of people who purchased their home in the last two years. The reality is that most homeowners are still way ahead on the value of their homes. Someone who bought 5-10 years ago still has plenty of equity, as long as they didn't take it all out with home equity loans.
4. The drop in prices isn't equal nationally. In many places of the country housing prices have hardly dropped at all. As a result, the damage is limited.

While real-estate may be a drag on the economy, it is hard to imagine that its impact will be consequential enough to drag a relatively robust economy into recession.

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:

http://www.marketwatch.com/tvradio/player.asp?guid={B96D16C8-2F6D-4503-ADD4-C8824371BB0A}