The Case-Shiller housing index fell 6.1% YOY for October. This poor number masks some of the very poor regional number in Arizona, Las Vegas, and South Florida which have seen double digit declines over the last year. These are also the places which have seen the greatest number of subprime loans.
As long as housing prices are still declining. the the value of CDO's with subprime debt willl continue to decline. Any foreclosures will face a poor market for selling the collateral hence there will be less funds available for the holder of the securities. There will have to be more writedowns by financial institutions if this continues. Consumer wealth is declining which will lead to lower sales. Conservative behavior by consumer has already shown up in the tepid Christmas retail sales.
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