In recent months, the US real estate market has seen its fair share of turbulent weather as house prices continue to fall. While the Federal Reserve has taken significant steps towards making lending cheaper, interest rates remain artificially high as the troubled financial sector continues record write-downs. So far, only a quarter of the IMF-estimated $1 trillion in sub-prime losses have been reported, which means mortgages won't be affordable for a long while, even if homes continue to decline in value. According to the Case Schiller house price index, which covers 20 major metropolitan areas, house prices are depressing at an annual rate of 12.7%, though its rate of descent is accelerating. As long as homeowners continue to lose equity, loans will become increasingly difficult to obtain.

As this feedback loop works itself out, a regionally dependent phenomenon has begun to emerge. Although home prices averagely dropped in the US the story doesn't end there. Despite lowered economic growth forecasts and commodity-related inflationary pressures, (which are felt much more diffusely throughout the economy) several metropolitan areas have remained more robust, which explains dissenting votes on the past two rate cuts by the regional Fed chairs from Dallas and Philadelphia, respectively. Part of their reasoning is based on working against what they view as a misconception about the scope of the Fed's powers among many investors; namely, that the central bank is the only agent responsible for assisting challenged markets. Political jockeying has and will continue to play a role in their decisions, especially in the charged climate of an election year, but their dissenting votes represent the resilience of many areas of the US that continue to experience growth. From Charlottesville, North Carolina to Austin, Texas, many metropolitan areas continue to develop quickly, seemingly insulated from much of the speculation and predatory lending that has defined tracts of the US. While some of the worst affected markets in the Southwest like Phoenix, Arizona and Las Vegas will take considerable time to rebound, some price correction was inevitable. This is partially due to property value spirals in recent years, without corresponding increases in infrastructure and demand. In markets where growth had already been steady, home prices have been relatively stable.

If the federal government steps in further to freeze or help re-negotiate more of the estimated two million sub-prime mortgages projected to default over the course of 2008, prices may stabilize more quickly. Politicians, closing ranks in a show of solidarity, will likely be reluctant to make bipartisan efforts a priority while the presidential race remains in the limelight, which makes investment in the near and medium term likely to be more profitable, both in markets where prices have overcorrected and in stable markets. This is because any government-based mortgage interest rates freeze may be less favorable than current rates, which are firmly negative. Moreover, refinancing remains available should climates change. In any case, the worst may not be over for a lot of America, but some places have weathered the past eight months relatively unscathed.

Escapesomewhere Real Estate is a small brokerage working in the Austin real estate market. They host a free search of the Austin MLS along with providing updated commentary on their Austin real estate blog.

The recent sub-prime crisis is unlike any faced by the financial system before in one dubious distinction: Its effects are exacerbated by globalization to an unprecedented degree. Recent developments help illustrate exactly how this credit crunch can be differentiated from others, such as the savings and loan scandals of the 1980's, by its fundamentally larger scale and complexity. To explain the sub-prime crisis adequately, first the causes must be clearly identified. Like the savings and loan problems, predatory lending on the part of real estate brokers and agents, combined with a fair amount of financial fan-dangling, many banks loaned out more money than they normally were allowed to. By keeping these loans off their balance sheets, they were able to loan out much more than the rule-of-thumb ten times their deposits. If you consider that the sub-prime fallout is considered by most to be over $250 billion dollars, then the loans made could be in the trillions. The vehicles in which the debt was stored were basically invented for the purpose of deceiving potential investors into believing that they were sound investments, not risky sub-prime mortgages. The savings and loan crisis took a similar tact, and ended in similar levels of indignation, consumer despair, and regulation. As the years have gone by, those who cried for deregulation in order to help the already unprecedented economic growth skyrocket higher still have gotten their wish, but at a price: now that the Fed has instituted more clear standards for informed consent for borrowers, a crisis like this will likely not emerge again for some time. However, this is a lone consolation for the amazing amount of debt that has yet to be declared throughout the financial system. The reason this crisis is so much larger is because the repackaged sub-prime debt was sold not just to other Americans, or even Canadians and Europeans. It was sold all over the world, to China and India and many other countries. This means that the problem increases in complexity, as differing international regulations for the timetable on debt declaration and a financial system that has turned a boom into a spider's web of uncertainty contribute to higher risk to any institution that lends money. This, in turn, places a de facto cap on the amount of economic growth that can happen. But the problem is also much, much larger because the entire world has some degree of stake in it. Now European central banks are cutting their interest rates as well, in order to combat a problem that won't even really exist in a measurable form until two million Americans default on their mortgages in the new year. When the fallout was limited to the US, as was the case with the savings and loan banks, the turnaround time was a matter of two years, give or take. Now, the sub-prime crisis has been high on the international public radar for well over a year, but less than a tenth of the lowest estimates on the total debt have been acknowledged by lending companies. This means that recession is a much more likely outcome of this global problem than it seemed even three months ago. Living in Austin Ki works for a small realty company focused on Austin real estate. They provide information about the market on their blog about Austin real estate news along with a allowing users to start searching for Austin homes online through the Austin MLS.