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Asset Valuations Generally, the purchase of a residence requires two things: wealth for the down payment and income for the servicing of the mortgage, payment of insurance, taxes, maintenance and other expenses.

The severe year-long decline in technology heavy indices has erased substantial wealth. This equity market decline has impaired compensation because many option grants are now worthless. Job security is a growing concern because it influences the cash flow characteristics for the next 15, 20, or 30 years that are common terms for mortgages.

The stock market decline will have a real impact on property valuations going forward. With less wealth available for down payments, transactions become more difficult to conduct. Second mortgages or home equity loans may compound the situation, particularly if previous loans were used to finance speculative security purchases.

While lower rates may temporarily mitigate the financial crunch, lower rates in and of themselves do not replace wealth or property owner equity. Lower rates afford those who can refinance the opportunity to lower their monthly cash outflows but do no necessarily stabilize real estate values at their recent highs.

If history is any indicator, the comparative lack of liquidity in real estate versus securities markets dramatizes pricing gaps between transactions. This is especially the case during "Boom and Gloom" episodes. A symptom is fewer transactions despite seemingly low inventories of properties for sale. In other words, the rate of turnover declines and this reflects reduced market liquidity.

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