2008 was the year that subprime borrowers and speculators got hurt by the real estate crisis. 2009 could be when everyone else gets hit. Here's why.

Going into 2009, with the deepening recession and mounting job losses, serious housing troubles could infect wealthier communities and markets that were just beginning to stabilize this summer before the bankruptcy of Lehman Brothers on September 15 sparked the most serious financial turmoil in decades. Housing prices are expected to fall 12.5% nationwide next year. On December 23, Credit Suisse forecast that more than 8 million homes will go into foreclosure over the next four years or approximately 16% of all US households with mortgages. Housing and mortgage problems pushed the nation into a recession that could amplify and expand the reach of housing declines in areas that are concentrated with high earning residents and high demand.

For instance, Manhattan condo and co-op prices soared years after housing bubbles in most other major cities popped. NYC's real estate market was bolstered by residents who were still earning sky-high Wall Street Bonuses and by a weak dollar that attracted overseas bargain investors. With stronger USD over the past few months and financial market crisis that drive thousands of Wall Street big players out of job, Manhattan apartment prices have dropped as much as 20% since the summer.

Unemployment and Real Estates:

Problems in manufacturing cities have less to do with risky mortgages but mainly caused by job losses. Gary and Detroit have already showed sign of a steep decline in housing market due to recent massive lay off. Alabama, Arkansas, Atlanta, Michigan and Ohio could soon experience the same problem. The impact of job losses could be serious in Charlotte, NC, a major banking center that had been one of the nation's strongest real estate markets, when Bank of America starts laying off up to 35,000 employees over the next few years.

The economy is in a downward spiral with job losses that is weakening the consumer markets. As the recent consumer spending report shown retailers slashed prices up to 70% to 80% off to clear year end inventories. Government involvement is needed to stabilize housing market by injecting liquidity in banks, lowering interest rates, tax stimulus packages. So far, we only see a sharp increase in mortgage refinance but only a moderate increase in mortgage application. This downward cycle will only end when the prices fall far enough that make it affordable to large number of buyers.

However, housing market around Washington, DC which suffered greatly in the wake of the housing bust is beginning to recover. It is because the nation's capital has so many recession-proof government and defense contracting jobs. Other areas such as Boston, San Diego, and Orange County are getting close to affordability levels and could begin to level off.