In a recent housing market report, Goldman Sachs economist Jan Hatzius referred to Florida as the 'Epicenter of the U.S. Housing Bust'. Taking a look at the way home sales have slowed, prices have tumbled and foreclosures have risen in the state, Hatzius' assessment seems to be right on.

Home Sales

Florida now has the largest glut of inventory of any housing market in the country. The backlog is unprecedented, with some areas of the state-like Miami-flooded with a 30-month supply of unsold inventory.

According to the University of Florida, the state's housing market has gotten worse rather than better since the turn of 2007. Existing homes are selling at the slowest pace seen in years, and new home sales are faring even worse.

Some of the sales slowdown, particularly in the new home market, is being attributed to tightening lending standards, but in actuality, Florida had these problems long before the subprime meltdown began.

The real trouble seems to originate from sellers who aren't able or aren't willing to lower asking prices so that the homes will sell.

'People are overly optimistic about the prices they can get and have not come to terms with the fact that we're not having these huge leaps in price that we had in the past,' said Wayne Archer, director of UF's Bergstrom Center for Real Estate Studies.

Home Prices

Markets in Florida had a faster rate of appreciation than other markets across the country during the boom years. The run-up in prices was so rapid that it could not be sustained.

Current prices in Florida are overvalued by 40 percent according to Hatzius' most recent estimates, and will most likely fall until they are at sustainable levels once again. The U.S. Market Risk Index released earlier in the week by PMI Mortgage Insurance Company ranks Florida as one of the states most at risk for falling prices.

'What the markets with the greatest risk of decline have in common is a history of price volatility: rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation,' Mark F. Milner, Chief Risk Officer of PMI Mortgage Insurance Co explained. 'Markets with a history of volatility are more likely to see price declines in the future.'

If prices fall to the extent they are estimated to fall, things are bound to get a lot tougher in Florida for anyone with ties to the construction and real estate industry. Significant price depreciation could also lead to financial devastation for some homeowners and investors.

Hatzius warns in her report that falling prices are 'likely to cause an outright recession' and that some businesses 'could encounter problems for an extended period of time.'

Foreclosures

Foreclosure activity in Florida can only be described as out of control. According to RealtyTrac, an online marketplace for foreclosure properties, activity increased 52 percent in May compared to the previous month and 144 percent compared to the previous May. There is now one foreclosure filing in Florida for every 336 households.

With more ARMS adjusting, continued turmoil in the subprime lending market, and falling home prices, it is likely that Florida's foreclosure problems will only get worse.