If you were to ask me the future of home prices will not be determined on the extent of the bailouts as much as the employment picture. For the past few years I have been on the fence of what the real economy ramifications of this housing/credit bubble were going to be, leaning towards a garden variety recession. That may have been a little naive. The recent data on the economy as far as job loss, auto sales, ISM index etc shows a profound decline hitting right now. Goldman Sachs has revised their projections for a much deeper recession (this will be revised again) and on a smaller note I am seeing this decline first hand in my own business.

Up to this point the underlying economy in S. California has actually been somewhat resilient all things being considered. I don’t see that continuing. I liken this to residents along the Gulf coast preparing for hurricanes. The last couple of recessions we have had have been maybe a weaker Cat 3 in the early 90’s at least in CA and a strong Cat 1 in 2001. The financial crisis we are in the midst of is like a Cat 5 (Camille) with 200 mph sustained winds and a 25 ft storm surge that is just now approaching land. Ask people who have experienced a Cat 5 hurricane how much different of an experience that is from a week Cat 3. The next 12 to 24 months are simply going to be horrible and the total tally of the bailouts could possibly reach $2 Trillion. I really hope that I am being extreme here but the data is coming in and it does not look good. So again the employment picture will be a strong variable on where home prices bottom.