Re: Watchout, falling rocks (read: Real estate prices)
In US the reason being given out is "prices peaked", "more houses in market", "new loans are made difficult" etc. I am trying to find out what is happening around the globe and if the falling-price is 'global phenomena'.
Its a cycle, which started with a mathematical rarity, commonly known as the millenium bug circa 1999-2000.
Y2K Bug
To prepare (and proof themselves) for the millenium bug (aka Y2K bug), businesses invested a huge amount of money in new computers and technologies in late-90's.
Dot Com Bust
With the huge spending done in late 90's, early 2000's saw a sharp decline in IT spending (typically companies upgrade their major IT infrastructure once in 5-10 years). This period is commonly known as "dot com bust". A lot of IT companies trying to ride the internet wave, folded. Economy was down.
ARM
Housing market is always considered a key in how the economy is doing. During the "dot com bust", to keep US economy afloat, the Federal Reserve decided to keep supporting the housing market. Interest rates were brought down to an amazingly low level. This allowed a lot of people to buy homes at very low interest rates. Of course the best interest rates were those that were adjustable (aka ARM).
Sub-Prime Melt Down
Now 3-4 years later, those ARM loans are coming due for adjustment. A lot of home-owners that shouldn't have bought their homes in the first place are discovering that since interest rates are not that attractive any more, they can not afford their own homes. Hence the foreclosures and defaults. This is called the "sub-prime melt-down".
Ripple Effect
This has the ripple effect to all those who invested in real estate or real estate-related stocks. Consequently an overall shortage of capital that is being invested in real estate. High-priced real estate markets (CA, NY etc) are harder hit since US government (through Freddie Mac and Fannie Mae) decided not to fund jumbo loans (loans higher than $417k) any more.
Crystal Ball
How this will all play out in the coming days/weeks/years is any body's guess. Logical thinking says that when people take money out of real estate, they'd invest it elsewhere and stock market should see a resurgence. Another point of view says that consumer spending will be impacted (first big impact going to come in new auto sales), and hence this will lead to a wider recession. With US elections coming up, chances are that any significant recession won't be allowed till after Nov 2008. Till then it will be a slow and steady downward spiral.