I had lunch earlier in the week with a guy who works for a very large (more than 400 agents) real estate brokerage. He is in administration, he is not an agent. Here are the relevant factoids: his firm's commission volumes are down 40% from the peak (from $1.9-billion to $1.1-billion), there not too much agent attrition yet but its coming, the worst home to own in this market is 5-6 years old in an outlying suburb that wasn't completely built out when the boom ended, the only warm spot in the market is in the $250-350,000 range, and the higher end of the market is DOA. So, the Portland, OR market is not that dissimilar to the Santa Fe, NM market. Not that surprising. Both of them are in the West, neither of them overheated spectacularly, but each did enjoy some abnormal price appreciation before the bust.
There will be two bottoms in the housing market. One bottom will occur when new home construction, home sales volumes, real estate commissions, levels of mortgage financing activity, and so on hit bottom. For the general economy (and to my friend), that's the bottom that matters.
The other bottom is the one that matters for individual home owners. That's the point at which existing home prices stop declining. That's the one that matters to most aging boomers.
The two bottoms will not occur at the same time. The first one very well may be occurring even as I write. If not, it is very close. And when it occurs, and when there is a very mild pickup, that will be very good news indeed for the general economy. Hint, though, think L, not V.
The second one is a ways off. The rent to buy comparison still favors renting. The media is full of comments like (earlier this week) 'There is no rational reason to buy a house in today's economic environment.' The animal spirits that operated to exacerbate upward price trends a few years back are now operating to futher deflate prices. Experience in the sand states suggests that when prices drop by 40-50% new buyers come into the market, but the rest of the country is only half way to price declines of those magnitudes. The upper end of the market (anything requiring a jumbo to finance) has frozen up, and the only way it will thaw is with a price blowout (which, in my humble opinion, is ultimately inevitable, though it can be delayed).
So, basically, residential housing investment losses will continue to be a drag on the economy. But the adverse impact of declining levels of housing related activity (construction, sales, financing, major appliance and furniture purchases, etc.) has already been absorbed. Time to pay less attention to housing and let the homeowners suffer quietly, trapped wherever they may have been when the music stopped, until a day of reckoning when growing paper losses are ultimately realized.