Just over a month ago I wrote an article on just where I felt the real estate market was heading. I argued that interest rates would continue to rise as the Fed worried about inflation, and builders, who were loudly proclaiming the market is simply cooling off, were just trying to generate additional sales. Another interest rate hike later, the Fed has indicated that further hikes are not off the table, gas prices have continued to rise, and home inventories are reaching epic proportions.

I received dozens of emails from readers who claimed I was misconstruing the numbers, while others suggested I was too stupid to ever own a home, and should consign myself to renting. It is in the spirit of those emails that I offer up these juicy market tidbits. Enjoy!

Ameriquest recently reported a 46% plunge in loan volume, which resulted in 229 retail branch closures, and 3800 jobs eliminated. They are not alone. Saxon Mortgage and ECC Capital Corp. also announced branch closures as rising interest rates continue to drive buyers out of the market and squeeze mortgage brokers nation wide.

On May 6, the Honolulu Star Bulletin reported Honolulu home sales down 41% year-over-year in April, and Maui condo sales off by 50%.

On the mainland, California homeowners and speculators are taking a beating as well. Year-over-year home sales are down a whooping 46% in Sacramento, 30% in San Francisco, and a staggering 50% in Los Angeles/Long Beach.

Checking the Atlantic side of the continent we find the New York Times reporting on May 9 that the inventory of homes for sale in the Fort Lauderdale area has quadrupled, year over year, to 20,000. Ouch! I almost feel sorry for all those speculators in Florida. Ok, not really.

On May 15, 2006 Marketwatch reported U.S. home builders have turned negative on the housing market for the first time since just after 9/11, the National Association of Home Builders and Wells Fargo said Monday. The NAHB/Wells Fargo housing market index, a builders' sentiment gauge, fell six points in May from a revised 51 to 45, the lowest level since June 1995, the industry group said. The index shows more builders say the market is "poor" than say it's "good." The index has fallen 23 points in the last seven months. In May, builders' assessment of current single-family home sales fell to 50 from 55. The assessment of future sales dropped to 54 from 59. The assessment of the traffic of prospective buyers dropped to 32 from 39.

Remember those mortgage defaults I mentioned reaching all time highs? Those numbers are starting to look rather tame. Real estate consultancy RealtyTrac reports, A total of 323,102 properties nationwide entered some stage of foreclosure in the first quarter of 2006, a 72% year-over-year increase from the first quarter of 2005 and a 38% increase from the previous quarter. When you factor in the massive numbers of homeowners that unwisely chose to purchase their home using an adjustable rate mortgage at the bottom of the rate curve, it becomes very apparent that we have not even seen the tip of the default iceberg.

How big can the default numbers get? It really depends on two factors. One, how many people chose to finance with ARMs, and two, how high are interest rates going to get? To give you some idea of the numbers of ARMs out there, I offer up one of the most expensive markets in the country, San Diego. In 2004 and 2005 nearly 80% of all homebuyers in that highly overpriced market used adjustable rate mortgages. Get the picture?

There is little doubt that middle class America has born the brunt of real estate run up, but how has the higher priced market fared? Historically, when the stock market is offering up nice returns, as it has been lately, higher priced homes tend to sell very well. Not any more! A close look at Toll Brothers sales finds them off a staggering 32%. Surprisingly, instead of scaling back their building plans and focusing on reducing inventories, Toll Brothers has announced a ramp up in production. The Dow Jones reports, Toll Brothers plans to open 80 communities during the next six months, and expects to wrap up fiscal 2006 with 295 subdivisions, up from 230 in fiscal 2005.

With summer upon us, the next few months are going to be a crucial test of the housing markets flexibility. If agents continue to advise clients the market is simply cooling down and keep pushing those high prices, things may get stagnant very fast. Buyers arent stupid. At least I hope not. With a little patience, the sellers market could quickly turn into one of the best buyers markets in years.

My stance is essentially the same as it was last month. Wait out the rising rates, continue to save, and resist the temptation to buy into a market that looks primed for a fall. Dont let those attractive offers of upgrades from builders lure you in. Properly timed, a buyer could not only get that nice upgrade package, but could also wind up paying thousands less for the home. Builders are in the business of selling homes, not holding onto them. If the market moves, they will move with it. They really have no choice. Buyers do. Make a good one.