Affordability May Bust This Bubble Say Analysts

The lack of affordability in the California housing market (and elsewhere) will pop this bubble if nothing else does. The Marin housing market is as dependent on first-time buyers as is any other housing market as it is the first-time buyer that initiates the "buy up" chain reaction.

Some choice quotes:

"Prices in the hot U.S. housing market are poised to decline as demand dries up due to the inability of first-time buyers to afford a home, a Merrill Lynch analyst said in a research report on Monday."

""The housing market has become so stretched that the affordability ratio for first-time buyers, the folks who drive the incremental demand in the real estate sector, has deteriorated to levels last seen in the third quarter of 1989," wrote David Rosenberg."

" The price of an average starter home in the United States has climbed 14 percent over the past year, while the average income for the first-time buyer family has risen just 4 percent, Rosenberg said, calling that an "unprecedented gap.""

"In the third quarter of 1989, bids evaporated and new home sales dropped 20 percent the following year in response to lofty prices that first-time buyers could not afford, the analyst said."

Affordability, Congress revamping housing's tax incentives, declining sales volume, declining prices, China floating the yuan, mortgage rates increasing (if slowly), what else? All in all it looks bad.