Mortgage Flight to Quality

Every market trend contains the seeds of its own destruction. That's just a fancy way of saying that nothing lasts forever.

Right on schedule, just as things seem to be overwhelmingly hopeless as mortgage mayhem makes the front pages throughout the country, there are signs that the drop in the housing market may be playing itself out.

The subprime market (mortgages to borrowers with poor credit) will continue to be a mess for a while. But mortgage rates for prime borrowers have actually dropped lately.

That's due in part to a more stable near-term interest rate environment, and also because all the money coming out of the subprime market has to go somewhere.

The net effect is that for people with good credit and a stable job, interest rates are falling at the same time that subprime borrowers are disappearing from the market and house prices are dropping. If you're a prime borrower, you can suddenly afford a lot more house than you could a year ago. For that group, this could be the best time to buy a house in years.

Combine that with the fact that populations in most metro areas are growing (with a couple of exceptions, like Detroit and New Orleans), leading to built-in demand for more housing, and it starts to become clear that there's a floor forming under real estate prices.

We won't see the wackiness of the bubble again (at least I hope not) for a while--the lack of subprime mortgages will keep people from bidding prices up too high--but sanity and stability should be the order of the day.