The Residential Markets are doing the equivalent of the Limbo Dance these days. The only remaining question is How Low Will They Go?

Here are three recent data points from the Press and our Wellspring Network Members showing just how bad the Single Family Residential market is in many areas of the country. I think you will see clearly why I remain suspicious that single family homes still have far to fall to hit the actual bottom in a large number of markets.

A) The Deepening SubPrime Mess

An article in last week's Wall Street Journal showed a graph of the default rates of residential mortgages based on the year in which they were originated. Talk about some scary numbers.

For Mortgages written in years 2000, 2001 and 2005

At twelve months after loan origination the default rates averaged 8%. This is considered a high default rate by the way.

For mortgages written in 2006 and 2007

At twelve months after loan origination an average of 15% were delinquent and the delinquency rate is still climbing steeply. 24 months after origination of 2006 mortgages ... a full 30% were in delinquent and the delinquency rate is still climbing steeply.

What will the ultimate Default rate be on these 2006 and 2007 loans... 40% ... 50% ... higher ?

The answer has huge implications for Real Estate and the whole economy at this point. And we are no where near the peak default rates ... yet.

B) The Investor's Credit Crunch

Many Residential Real Estate Guru's are saying this is a GREAT time to buy Pre-Foreclosures, REO properties and cheap rehabs. But even that is difficult given our simultaneous Credit Crunch.

Especially hard hit is the Residential Mortgage for the Non-Owner Occupant ... the type of loan an Investor would use to buy a house. Multiple Residential Investors in the Wellspring Network are telling me that these loans are VERY difficult to come by with one exception. If you are doing all your business banking with a local bank, they may be able to get you an investor's mortgage more easily than any regional or national lender.

HOT TIP:

If you will be needing an Investor Loan in the next 12- 24 months,

you might consider moving all of your accounts to a

strong local bank now to start building that relationship.

C) Last but not least - Foreclosures and REO

One of our network members tells me that in Houston last month a full 60% of the foreclosed houses offered for sale on the courthouse steps didn't get a bid. And Houston is not a market that is in deep trouble.

There appear to be two reasons for this.

1) No availability of Non-Owner Occupant loans as mentioned above

2) Investors know these same houses will become Bank REO properties and show up in a couple of months even cheaper on the MLS.

The Investors know that even a courthouse steps auction is asking WAY to much right now. Banks and other lenders are becoming desperate to move their inventory of REO property. Loads of extremely cheap houses are beginning to show up on the MLS in many markets.

For an extreme example...

If you search www.Realtor.com for homes in Detroit at a price of $20,000 or less you will find 5,451 listings. This does not take into account the thousands of abandoned properties that are not listed on the MLS.

So where and when is the bottom?

I still believe the worst is yet to come as the defaults on mortgages written in 2006 and 2007 move to Foreclosure. The problem is that these additional foreclosures pile on to an already terrible market where it is simultaneously difficult for investors to get a loan.

Now ... On One Hand

This could be a bonanza for SFR investors and now MIGHT be a good time to buy IF you have the cash.

AND on The Other Hand

The actual, real, honest to gosh bottom of the market may be many months in the Future. My crystal ball is as cloudy as yours. The longer it takes to hit the true market bottom ... the cheaper homes will become and the more opportunity the Credit Markets will have to recover and start lending on Investment Properties again.

Keep your eyes peeled in your local market, don't forget Multifamily and stay tuned...