Some general observations from a California standpoint:

The primary reason is the unemployment rate, which is continuing to increase. It's now 11.2% for the state - some localities are higher. No job, no ability to make payments, no credit extension - no new home, no matter what the price. People who have jobs are not taking their employment status for granted, and are being using the money they have to pay down bills and address immediate concerns.

There's also a huge amount of inventory and little reason for people in the market for a home to hurry their search. Qualifying for a loan is much tougher than it used to be, so the process may take a bit longer when they make a decision, too. Since the market is not conducive to immediate resale, people buying now are looking at long-term investments in an uncertain economy.

Consumer confidence has a place in the equation as well. I'm not speaking so much about the Index, which seems to be stabilizing in the low 20's, but the mood of the people and businesses I know is still very fiscally conservative. For example, a realtor who recently put her first 3 properties in escrow in months told me that if they close, the money is going straight into the bank as a hedge against future bleak sales months. The busiest realtors locally are still those dealing with foreclosures.

I agree with Dataquick that it's too early to say that prices are stabilizing with only three months of slowdown in the trend. There's a lot of inventory being held by banks and other mortgage holders. Countrywide's REO site for CA shows 2,001 properties on the books. I know of several subdivisions that have properties that have not seen a payment in months, but have not yet received notices of default.

I think we're going to see a fairly long period of caution before any uptick in the market becomes a trend.
Source(s):
http://www.sfgate.com/cgi-bin/article.cgi?file=/n/a/2009/03/17/financial/f0...
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