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This is the "calm" before the real storm.

The next year will be a wild one in the financial markets.

This may be the first time ever that drops in home values actually cause a deep recession.

A lot of folks around here are still in deep denial, but they better start paying attention--resetting ARMS (based on higher interest rates which reflect the perceived risk in the mortgage market) in the next few months will affect a lot of middle class folks with decent credit, not just the subprime market everyone is discussing.

Higher interest rates will also keep potential financially qualified buyers on the sidelines--delaying their purchases in the hope that rates come down and sellers lower their unreasonable expectations.

....could be but I would inject two thoughts.....
1. if recession does loom the Feds are gonna lower interest rates big time.....
2. once all this shakes out, the market will price in the future credit crap and they psychology won’t play out..
.....just like in Feb when market lost 400 points on the China market loss......after that one time, it never even blushed when China went down.....the market hates uncertainty so once it has seen it before, it usually is not phased unless fundamentals are weak.....

You are grossly overstating the situation. The vast majority of mortgages outstanding are fixed-rate loans. Countrywide has enough cash right now to take defaults on every single one of the ARMs it has, and that isn't going to happen. Most other lenders didn't get into the ARMs or subprime loans as heavily as Countrywide did, either. Countrywide still does the bulk of its business in Fannie Mae/Freddie Mac loans and those agencies are still buying everything they can.

People REALLY need to calm down about this situation. Investors have temporarily pulled back from mortgage-backed securities but they will be back.

I agree...Going to get ugly soon...Hate to sound negative/pessimistic but the facts are we’ve been extremely spoiled for sometime now....The writing is on the wall as they say...The economic policies that the congress(mob) has implented years ago are starting to come to roost...Just look at the situation with China for example...The last 5-6 years anyone with a pulse got a mortgage...Somewhere down the line someone(us) got to pay for it, just the way it is I guess...

“-resetting ARMS (based on higher interest rates which reflect the perceived risk in the mortgage market) in the next few months will affect a lot of middle class folks with decent credit, not just the subprime market everyone is discussing.”

Most of those people will be able to refinance into decent rates.
Some are doing it right now, others are waiting.

resetting ARMS (based on higher interest rates which reflect the perceived risk in the mortgage market) in the next few months will affect a lot of middle class folks with decent credit

Making the 5.25% - 30 year fixed I've got look like one of my better financial decisions ...

This may be the first time ever that drops in home values actually cause a deep recession...

Oh, man...here's another one. Just remember, folks; gloom and doom seem to sell. That doesn't mean you should buy. Gloom and doomers always have reasons that we're gonna die; put in perspective, it's generally less compelling.

A company like Countrywide needs to focus on the aggregate national home market. Everyone who owns a home, however, just has to worry about one, their local market. What happens to your local market will determine what your own home does. Some markets which have seen booming appreciation, perhaps doubling in the last five years, are overdue for a correction. These are the ones you see on the nightly news. This is the kind of reporting you should expect from the MSM.

Other markets are still appreciating. It matters where you live, so don't assume the worst.

That's a simple idea, which is obviously true, needing no further explanation. It explains why this story is interesting, but the theme of depreciating real estate values may not even apply where you live...and those who are peddling it are trying to alarm you.

Don't be jumping out windows, and listen less to those who preach gloom-and-doom.

Perspective, perspective, perspective!

This may be the first time ever that drops in home values actually cause a deep recession.

While my ARM is capped at a reasonable level and I pay principal, increases in interest rates + increases in real estate taxes from Greenspam's RE price bubble + increases in energy costs have definitely cut into what I am spending supporting my local merchants. Based on my spending patterns, my favorite restaurants and wine merchants must be feeling the squeeze.