Where's the Bottom?

Includes: DIA, QQQ, SPY
by: Michael Panzner

One question that keeps popping up as the meltdown unfolds is: "When is it all going to end?" In truth, that question is almost impossible to answer, because it depends to a great extent on the actions of some key players, including the Federal Reserve and the Washington political establishment.

Even so, given that many of the current woes stem from the plethora of distortions that developed in the residential property market, it seems a good bet that a true turning point will only really be seen when home prices fall back to levels that have some link to economic reality.

In "Mind the Gap: Home-Price Downside," the Wall Street Journal's Scott Patterson highlights a statistic that suggests we still have quite a ways to go before we reach that point.

The economic balance hangs in large part on how much further home prices will fall. A look at one important measure -- the relationship between home prices and household income -- suggests we might not even be halfway there.

Over the long run, home prices and income should march along the same path. As households earn more, they can afford to pay for more expensive homes.

But the two can get out of whack. During much of the 1990s, incomes grew faster than home prices. The landscape shifted around 2000. From the start of the decade through the mid-2006 peak, home prices nearly doubled, thanks in part to falling interest rates. Over the same period, income per household rose just 26%, according to Moody's Economy.com. ...