in socal, homebuilders are raking it in. real estate values have skyrockected here in socal. the residential market, both MFD (apt) and SFRS(houses), have really been moving. in some areas, id say MFD projects have appreciated 15% or more since 5/02, and thats on top of +/-20% to 25% gains YOY from 5/01 to 5/02. homebuyers that waited for home prices to retrace have seen price increases outpace their ability to increase their down payments. what to do: get a 95% LTV mortgage, wait, move to nevada, or...? the homebuilders that have land "banked" are getting almost pure profit on the price appreciation. and for the most part they are avoiding condos due to construction defect litigation. lenders are not totally stupid, they know we are in the moronosphere, HOWEVER, i dont see any of them lowering their LTVs. they can crunch harder in underwriting, but they are making 75% LTV ARMs on apts with historically high rental rates, very low vacancy rates (like 1.5% in san diego county) and historically low interest rates. now the "C" and "C-" properties are starting to trade - bad sign! and lets face it, if someone can only come up with a $25,000 down on a $1/2 million home and needs a teaser rate to qualify - he probably cant afford the house! if we crater, i say it will be mostly due to high unemployment (as a result of an unsuspected shock event), which doesnt look all that likely now (i think san diego and orange county still are below 4% unemployment). i agree that it will be lenders that take the brunt of any downturn. you have to consider that many borrowers/owners have completed big cashout refis on properties they bought as little as 18 months ago! - in fact, many folks have loan amounts well above their initial cost basis of just a few years ago! their only liability will be via recourse provisions or the tax man if they have "exchanged" up. i see some of the more aggressive lenders having real problems or possibly going tummy-up - depends how bad things get. i see the homebuilders adjusting what they pay for dirt and selling smaller homes in markets with expanding job growth as once again there is a shortage of outbound U-hauls in california. but, not right away...