Several things have to happen before housing bottom is established:

1. Adjustable mortgages have to finish adjusting. That will not be completed for several more years. Adjustable mortgages lead to dramatically higher monthly payments, which leads to foreclosures.
2. Banks have to sell all their foreclosed homes at current market prices. Right now banks are holding on to their foreclosed homes, and they keep the values of these foreclosed homes on their books at bubble-top figures. Banks will have to write down the values of these homes (by 50%-75% in many cases) and sell them.
3. Sellers psychology has to change from hope/wishful thinking/denial to complete acceptance (complete acceptance means they are at peace with that and it no longer bothers them) that their house is only worth perhaps 25% of the 2006 price. This will take several additional years after rates finish adjusting and banks sell off their foreclosure inventory.

   Here is the grief cycle:
   1. Denial
   2. Bargaining
   3. Guilt
   4. Fear
   5. Depression
   6. Anger
   7. Acceptance

   Now at the end of 2007 we are still in Denial phase, gradually moving towards Bargaining. It will take several years to get to across-the-board Acceptance.

Two simple tests to determine how far we are from housing bottom

"Are you crazy to even think about buying a condo" test.

Condo prices will crash before the rest of the housing crashes.

Tell people around you that you are thinking about buying a condo. The reaction of every single one of them should be: "Are you completely crazy to even think about buying a condo. Don't you know that condo values only go down year after year and buying a condo will be the worst financial decision of your life. I will never buy a condo myself".

The reaction has to be exactly like that. If the reaction is along the lines of "sounds good", or "buying a condo may be risky", then we are still years away from the bottom.

And the reaction has to be universal. Everyone you ask has to tell you that you are completely crazy to even consider buying a condo.

Housing has to be less than 3 times annual income of the probable buyer test.

That's another simple test. Say you want to buy a house. Sit down and think how much the probable/expected buyer of this house makes. Be 100% honest with yourself when you are trying to estimate the income of the likely buyer. Then multiply this probable income by three. The house price has to be less than income times three. So if the probable income is $40K a year, then the house has to cost less than $120K. If the house is priced way above $120K, then your area is still years away from housing bottom. Relax and enjoy renting for a few more years.