This is part of Doug Nolands article at the prudentbear.com this week. I think his analysis is accurate.

It appears that the current housing slowdown, which we first saw in September ‘05, is somewhat unique: It is the first downturn in forty years – in the forty years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors. Instead, it seems to be the result of an oversupply of inventory and a decline in confidence. Speculative buyers who spurred demand in ‘04 and ‘05 are now sellers; builders who built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.” Robert Toll, Chairman & CEO Toll Brothers

In a predictable replay of the Technology Bubble, the U.S. homebuilding industry now faces the inevitable consequences from a period of spectacular over-finance and over-speculation (including massive industry overcapacity, collapsing profit margins and acute price uncertainty and instability). Industry executives have not previously experienced similar dynamics to this downturn specifically because there has never been a Financial Structure so capable of completely inundating the entire housing and mortgage arenas with cheap finance for such an extended period – never. As we witnessed with tech, destabilizing speculative flows appear seductively miraculous until they don’t.

Ultra-easy finance incited and then fed a speculative Bubble in home buying. At the same time, the nature of the Financial Structure saw to it that the homebuilders were also overwhelmed with finance, ensuring an enormous, destabilizing and self-reinforcing building boom. And the higher homebuilder stock prices ran and the cheaper their debt financings became, the greater the incentive to ignore the warning signs and race to develop more properties – to keep the dream alive and the liquidity spigot wide open. Moreover, the greater the boom the more the various segments of the ballooning U.S. Financial Sphere that wanted their piece of the action. And the resulting creative financing arrangements and instruments – and greater Credit Availability generally – the easier it became to finance ballooning transactions at higher prices (yet with lower individual mortgage payments!). Households inevitably succumbed to panic buying.