Looking back at news reports on the housing industry over the course of the last year, patterns emerge that were difficult to discern while in the thick of things. After talking about soft landings for quite a while, this time last year analysts were starting to admit that a harder landing was underway. But most still insisted that the downturn would hit bottom in 2007, perhaps in the spring, with recovery to follow, slowly but surely.

Then, the depth of the subprime and alt-A problems became more evident, and by February of this year, the predicted time-frame for a turnaround was being pushed back later and later. Now, the fallout from the mortgage mess—tighter lending standards, foreclosures, and increasing inventory—promises to postpone even the elusive bottom for some time to come.

The $326 billion question (one estimate of the dollar amount of mortgages expected to foreclose in the next few years) is, of course, when will the downturn end? Well, it's anyone's guess at this point, and guesses are exactly what we seem to have been getting. To be fair, though, the difficulty with being able to accurately predict how things will play out is that we are still, as in 2006, plumbing the depths of the problem, which—like the dotcom bust of the late '90s—is spiraling way beyond the earlier estimates of its magnitude.

One key to foretelling what will happen hinges on what homeowners who cannot afford the mortgage payments on homes that are losing value will do. Will they rent out rooms to stay afloat as some news stories are reporting? Will they try to sell their homes, even at a loss, to avoid ruining their credit? Or will they just walk away, leaving their former neighbors to try to pick up the pieces of their community? Unfortunately for those communities and for the builders in those areas, it seems that no matter what, the results will be the same: home prices that continue to plummet and rising numbers of homes for sale.

And how widespread a problem will this unaffordability crisis turn out to be? Will it remain localized in those areas where the previous runups in starts, sales, and prices defied logic or where other economic conditions make it impossible for homeowners to absorb even a small increase in their monthly payments when their ARMs reset? Or will it cast a pall over the entire housing industry for the next few years? News of rising numbers of foreclosures from cities such as Atlanta, where unemployment is fairly low and job growth is stable, seems to suggest the latter scenario.

This month we begin a three-part series called “Nobody's Home,” aimed at getting to the bottom of where we stand now in the cycle of this downturn and where we may be going. The first installment, by BUILDER Senior Editor John Caulfield (see “House of Cards,” page 106), describes how we got in this mess in the first place, how home buyers, builders, and mortgage lenders all contributed to the feeding frenzy surrounding what used to be called exotic mortgages.

Next month, we'll provide a glimpse of what a once-flourishing community in Indiana is facing as foreclosures mount, vacancies rise, and the remaining residents try to hang on to their homes in a declining economy. Senior Editor Steve Zurier spent time in the Franklin Township section of Indianapolis, walking the streets and talking with homeowners to try to gauge the extent to which numerous foreclosures affect them and their community at large.

The final part of the story, in October, will attempt to bring some clarity to the analysis of the current cycle. Senior Editor Ethan Butterfield is polling industry experts and analysts to find out their best estimates for when we will reach bottom, how long we will stay there, when we will be back to trend, and, perhaps most important, how they came to those conclusions. Our goal is to take an objective look at all the data and provide a reasoned forecast of what to expect. Stay tuned.

Denise Dersin
Editor in Chief

e-mail: ddersin@hanleywood.com

Learn more about markets featured in this article: Indianapolis, IN.