The numbers speak for themselves - the housing market experienced one of the largest crashes in its history last year and things do not look any better for this year. The reason for this is simple economics: An increasing number of mortgages are experiencing an interest rate reset to a higher level due to an ARM with a teaser rate; higher interest rates will lead to more expensive mortgages and late payments; more late payments will lead to more foreclosures; more foreclosures will lead to more houses on the market (increase in supply); and more houses on the market means lower valuations for the housing market; and finally, a declining market means buyers are afraid to put in money and buy a house leading to even lower prices (lower demand). It's a vicious cycle that may take awhile to end.

From New York Times:

Sales of new homes fell last year by 26 percent, the steepest drop since records began in 1963, the Commerce Department said on Monday.

Last week, the National Association of Realtors reported that sales of previously owned single-family homes, a large portion of the overall housing market, suffered their biggest annual drop in 25 years.

Prices have also fallen sharply. In December, the median price of a new home fell to $219,200, down 10 percent from December 2006.

For the year, the median price of new homes rose just 0.2 percent, to $246,900. But the median price of a previously owned single-family home fell for the first time in at least four decades, the National Association of Realtors said.