Submitted by Phil Collins, Aug 6, 2008 16:26

The failure of Indymac Bank — according to The New York Times the largest lender to fail in more than two decades — can be laid squarely at the feet of the lax (or nearly non-existent) underwriting that is part of (a big part of) the sub-prime mess. The chickens simply came home to roost. The troubles of Fannie Mae and Freddie Mac are quite different. Freddie and Fannie underwrote loans carefully; their difficulties are a result of the unprecedented decline of home values. In 2006, going against the conventional wisdom that single-family home prices never decline (they might stop rising for awhile, but they never decline), we predicted that single-family prices could decrease 10 to 20 percent. Painfully, that forecast turned out to be very correct – but also optimistic.

We're in a cycle now in which housing declines already are greater than at any time since the Great Depression of the 1930s. And we're not at the bottom yet. If you don't want to be disappointed by housing performance in the near term, disregard forecasts that the bottom is just around the corner – unless that corner is in Timbuktu. The bottom is not coming soon. And when it does arrive, it will not be obvious, like the bottom in the chart of the DJIA. The housing "bottom" will become apparent only in the rear-view mirror, when you realize that prices have stopped falling. Don't expect a sharp rebound. We will stay at the bottom for quite a while. How long that lasts will vary, as always, market-by-market.

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