NEW YORK – Home prices tumbled by the steepest rate ever in May, according to a closely watched housing index released Tuesday, as the housing slump deepened nationwide. The Standard & Poor’s/Case-Shiller 20-city index dropped by 15.8 percent in May compared with a year ago, a record decline since its inception in 2000. The 10-city index plunged 16.9 percent, its biggest decline in its 21-year history.

I predicted this time would come back in about 2003. I saw the signs of a looming crisis and told everyone I knew. I wish I had this blog then so I had something to point back at, but alas that isn’t the case. Things were pretty good then and no one believed me. Such is life. There are those who haven’t forgotten, I won’t let them.

The pendulum is swinging the other way at the moment. With home prices falling and financing even harder I predict we are about to screw up again. The worst problem with lending during the prelude to the sub prime crisis was the bottom end limit. Katy and I tried several times to get mortgages on properties we could afford even in our present economic situation. Despite good credit we lacked enough cash to make the twenty and thirty percent or higher down mortgages under $50k required. Oddly enough these same lenders kept offering us pre-approved zero down auto loans for upwards of $60k but wouldn’t finance a $25k four bedroom house that had been appraised at $100k. With falling home prices they are in even worse of a bind.

After some investigation with local lenders and real estate agents specializing in foreclosed properties what I have found doesn’t prove promising. Where the bottom end of the standard mortgage lending limit was $50k locally this has jumped to over $65K now. With falling home values and large numbers of foreclosed on homes, these lenders seem to be backing themselves into a corner. In a quick local foreclosure search I found more than a hundred homes that sold three to five years ago in the $80k to $100k range. The current appraisal is now in the $50k to $70k. The asking price of these homes, mostly from lenders shouldering the burdens is in the $25k to $40k. These lenders say they want to sell these properties, quickly but refuse to write mortgages at the level they are selling them. I was directed to several low price specialists who are no asking as much as 50% and none lower than 30% on these homes. This is too much for many people.

It appears the greed of the sub-prime crisis has not abated. Simply put people who could afford monthly mortgage payments for ten or fifteen years are being left out in the cold because they lack sufficient cash down payments. Mark my words if something is not done, soon to sell these properties to people that will live in them there will be an even worse crisis.