- Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans.
- Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.
82% of recent Bay Area loans are adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages (ARMs) get adjusted upward. Nationally, about $2 trillion of ARMS will adjust their rates to much higher levels this year and next.
- A flood of risky adjustable rate "home equity loans". Just like the bad primary ARM loans, these loans do not have fixed interest rates. When the interest rate adjusts upward, it can double monthly payments, forcing owners to sell.
- Massive job loss. More than 300,000 jobs are gone from Bay Area since the dot-com bubble popped. This is the worst percentage job loss in the last 60 years. It's worse than Detroit car problems or Houston's oil bust. People without jobs do not buy houses and owners without jobs may lose the house they are in. Even the threat of losing a job inhibits house purchases. Santa Clara County posted its fourth straight year of job losses in 2005, so it's not over yet.