Even in suburbs of the same city, there can be very large differences. [link|http://www.washingtonpost.com/wp-dyn/content/article/2007/03/23/AR2007032301002.html|Washington Post]:

Perhaps the sharpest contrast last year was between two of the [Washington, DC] region's most populous counties. In Fairfax County, the number of homes sold dropped 39 percent, and the median price fell about 1 percent. In Prince George's County, there was almost no evidence of a slowdown -- the number of sales rose 8 percent and the median price jumped 18 percent, an increase reminiscent of the first half of the decade.

Prince George's, along with several other suburban Maryland counties, remained markedly more affordable than any Northern Virginia county: The median sales price in Prince George's last year was $339,900, compared with $525,100 in Fairfax.

If the local economy is growing, there will be demand for housing. But if the prices in a neighborhood or suburb rose too fast over the past few years, then other suburbs will likely grab that demand.

And areas with stagnant economies will probably still have stagnant housing markets.

I wouldn't be surprised if some areas had flat housing prices for 5 years or more while others continued to grow at 5+ percent a year.

In short, I wouldn't be surprised if the national average selling price continues to fall even if sales rise. Or even vice versa. But it's not going to give a complete picture of what's going on. Lots of people are going to be hurt even if it doesn't show up in the selling price statistics.

Cheers,
Scott.
(AKA, Mr. Obvious.)

To elaborate...

[link|http://www.bloomberg.com/apps/news?pid=20601087&sid=asu8RitVhBIE&refer=worldwide|Bloomberg]:

A March 13 survey by the Mortgage Bankers Association found that Ohio had highest rate of homes in foreclosure nationwide. The state, whose economy has suffered amid declines in manufacturing, also had the highest rate of subprime loans in foreclosure. Subprime mortgages are granted to people with poor credit histories or high debts and often have rates at least 2 or 3 percentage points above safer prime loans.

[...]

The survey by the Mortgage Bankers Association found that Ohio's foreclosure rate across all loan types was 3.38 percent. Indiana was second among U.S. states with 2.97 percent and Michigan was 2.39 percent. Ohio also led the nation will 11.32 percent of subprime loans in foreclosure.

I don't recall cable TV shows like "Flip That House" being set in cities in Ohio or Indiana (it's usually in southern California). A lot of people having trouble with mortgages were, and are, people who were simply trying to have a small piece of the American dream - not trying to keep up with the Joneses or Trumps.

I'm not saying anything about fairness or casting blame - just saying that lots of people are going to be hurt as a result of the problems in the housing market.

[link|http://www.economist.com/opinion/displaystory.cfm?story_id=8885853|The Economist]:

Most of the damage so far is in the \ufffdsubprime\ufffd mortgage market, which lends to people whose income is too low, or whose credit history too patchy, to qualify for an ordinary mortgage. On March 13th the Mortgage Bankers Association reported that 13% of subprime borrowers were behind on their payments. Some 30 of America's subprime lenders have closed their doors in the past three months. The cost of insurance against default for the riskiest tranches of subprime debt has soared. The worst effects may not be felt until the mortgage payments of many borrowers with no equity in their homes rise sharply.

Is this a mere irritant in America's vast economy, or the start of something much worse? Opinion on Wall Street is divided. Most argue that the mortgage mess, though a blight on anyone caught up in it, will not spread. The number of mortgages at risk is too small for defaults to threaten everyone else. Even if a fifth of the $650 billion of adjustable-rate subprime loans went bad, that would be a blip in the $40 trillion market for debt. If repossessions extended the housing downturn, it would not derail an economy that\ufffdhousing apart\ufffdremains healthy, with unemployment of 4.5% and jobs growing strongly.

Cellar signal

Growing numbers of pessimists disagree. They think the subprime squeeze marks the start of a broader credit crunch that could drag the economy into recession. Stephen Roach, the famously gloomy chief economist at Morgan Stanley, recently called subprime mortgages the new dotcoms. Just as the implosion of a few hundred internet ventures in 2000 sparked a much broader stockmarket correction and an eventual recession, so the failure of the riskiest mortgages may distress the rest of a debt-laden economy.

[...]

For a decade, the fastest growth in America's mortgage markets has been at the bottom. Subprime borrowers\ufffdlong shut out of home ownership\ufffdnow account for one in five new mortgages and 10% of all mortgage debt, thanks to the expansion of mortgage-backed securities (and derivatives based on them). Low short-term interest rates earlier this decade led to a bonanza in adjustable-rate mortgages (ARMs). Ever more exotic products were dreamt up, including \ufffdteaser\ufffd loans with an introductory period of interest rates as low as 1%.

When the housing market began to slow, lenders pepped up the pace of sales by dramatically loosening credit standards, lending more against each property and cutting the need for documentation. Wall Street cheered them on. Investors were hungry for high-yielding assets and banks and brokers could earn fat fees by pooling and slicing the risks in these loans.

[...]

The greatest difficulties threaten borrowers whose house is worth less than their mortgage. Just under 7% of all American homeowners had this \ufffdnegative equity\ufffd at the end of December 2006 estimates Mr Cagan, using a sample of 32m houses (see chart 1). Among recent homebuyers, the share is even higher: 18% of all people who took mortgages out in 2006 now have negative equity. A quarter of all mortgages due to reset in 2008 are in the same miserable state (see chart 2).

Higher payments and negative equity are a toxic combination. Mr Cagan marries the statistics and concludes that\ufffdgoing by today's prices\ufffdsome 1.1m mortgages (or 13% of all adjustable-rate mortgages originated between 2004 and 2006), worth $326 billion, are heading for repossession in the next few years. The suffering will be concentrated: only 7% of mainstream adjustable mortgages will be affected, whereas one in three of the recent \ufffdteaser\ufffd loans will end in default. The harshest year will be 2008, when many mortgages will be reset and few borrowers will have much equity.

Mr Cagan's study considers only the effect of higher payments (ignoring defaults from job loss, divorce, and so on). But it is a guide to how much default rates may worsen even if the economy stays strong and house prices stabilise. According to RealtyTrac, some 1.3m homes were in default on their mortgages in 2006, up 42% from the year before. This study suggests that figure could rise much further. And if house prices fall, the picture darkens. Mr Cagan's work suggests that every percentage point drop in house prices would bring 70,000 extra repossessions.

[...]

Just when some would-be buyers find it harder to borrow, rising numbers of repossessions will increase the supply of homes for sale. The backlog of unsold homes is already high, at over 3.5m existing homes, or more than six months' sales. Counting the properties that have already been repossessed\ufffdand hence are all but certain to be for sale\ufffdthat figure rises by about a fifth. Add the likelihood of some 1m more repossessions as adjustable-rate mortgages are reset, and you have the makings of a housing glut.

Falling demand and soaring supply bodes ill for construction and house prices, the main ways housing affects the broader economy. Builders have already cut back. The pace of housing starts is down 33% from its peak in January 2006. Plunging residential investment is the main reason America's GDP growth has slowed to 2.2%. But, as Nouriel Roubini and Christian Menegatti point out in a recent report, that retrenchment is modest by historical standards. In the seven construction busts since 1960, housing starts fell, on average, by 51% from their peak. The mortgage crunch makes matters worse. To work off inventories, builders will have to cut back more, dragging output growth down for longer. Job losses in construction and related industries, which have so far been mild, are likely to rise sharply.

A glut of unsold homes will also push down prices, particularly in areas such as California and Florida, which had a disproportionate share of riskier loans. House prices have already been falling in parts of both states, as they have in Midwestern states, such as Michigan, where manufacturing industry has shed jobs in recent years. Will those declines accelerate and spread?

By many measures, America's house prices are still too high. David Rosenberg of Merrill Lynch points out that the ratio of income to housing costs is still some 10% worse than its historical norm and 20% worse than levels at the end of the last housing downturn in the early 1990s. Take out a chunk of potential borrowers; add in some repossessed homes and house prices could be hit hard. If falling prices raise the rate of default, that could in turn worsen the credit crunch, putting yet more pressure on prices. Wall Street's gloomiest seers think average house prices could fall by 10% this year. If so, the economy could well enter a recession.

[...]

The bursting of the stock-market bubble in 2000 led to a plunge in investment at American firms. To stave off recession, the Federal Reserve loosened monetary policy. Short-term interest rates fell to historic lows, propping up consumer spending, but also fuelling the housing bubble and sowing the seeds of today's upheaval.

Any such loosening is much less likely today. As the statement at their meeting on March 21st made clear, America's central bankers are still more worried about inflation than about recession. And with reason. Core consumer price inflation, which excludes the volatile categories of food and fuel, has accelerated, to 2.6% at an annual rate in the three months to February. With inflation higher than they would like, the central bankers are in no hurry to slash interest rates. They would lose little sleep if output growth stays sluggish or unemployment rates inch up.

[...]

The oil market is still fragile, as today's events involving the UK and Iran illustrates. Who knows what Hezbollah or some other group in the Middle East might decide to do to get attention in the next 6 months. North Korea is still a crap-shoot, and Iran shows no sign of becoming less of a thorn in Bush's side any time soon.

Of course, I don't know whether the tightening of credit brought on by the overheated housing market is going to go too far and push us into recession. I don't think it'll do it by itself, but the problems there take a lot of the available cushion that would prevent it from happening.

FWIW.

Cheers,
Scott.