All of you that have watched the Borat movie will understand the joke above but there is nothing funny about the current mainstream media bowing down to the housing blogs. If you have noticed, many housing bubble bloggers are now contending with the mainstream media (MSM) in dishing out the housing information. Not only is there a rush to the exits, but the media is now talking about issues many on the blogger circuit have been preaching for at least a year.
For example, Fortune magazine had an article published on CNN forecasting the top 10 markets to fall in the next two years. Take a look at the picture above, can you spot the pattern? Besides the fact that 6 areas are in California and 3 in Florida we see a coastal phenomenon. And of course who could forget the glamour and shine of Vegas but this is attributable from California Equity Giants™ (CEG) dumping their cash into second homes so it can easily be said that this market is the 7th wonder in California. Again, nothing shocking or surprising here but the thing that is odd is that the media is issuing double-digit prediction declines acting like Nostradamus without flinching. Look at Stockton California; it is projected to drop 7% in 2007 and 5% in 2008. Accounting for inflation and compound drops, this is quickly approaching 15% in two years. You can see this pattern repeated on many of the metro areas on the list.
What is more is that we are now seeing dramatic real world drops. No longer are bubble bloggers seen as mythical characters out of the Hobbit but as having some deep running roots in the forest of reality. For example, in Garden Grove a builder has slashed prices up to $140,000 in one year. The OC Register has published this article here: Falling Prices Trap New Home Buyers. Even more shocking is we are approaching at NASCAR speeds double digit drops in Southern California. In the Amazing Race to the Bottom™ we see that for November 2006 San Diego has dropped -6.9% and Ventura County has taken the lead with -8.2%. Quickly those double-digit drops that never seemed realistic to the housing talking heads is now knocking on their door like the ghost of Christmas past. Why do I get the feeling that many housing mafia syndicates are holding their breath for the glorious coming of spring and summer 2007?
Again, nothing of a shocker for anyone with a basic grasp of finance; if you can balance your checkbook you can see the headlight of this train coming a mile away while the rumbling of the ground signaled to your feet to take action. And what of the much discussed and famed soft landing™? Well, as you may have noticed the chit-chat of any soft landing was predicated on there being a safety net to fall back on; think of days in summer camp and the game of trust where you fall back expecting your friends to catch you. Well the housing camp is quickly realizing that their posse is busy putting out other fires. The fact that the CPI is 0 and the PPI is at 30 year highs is a conundrum. The yield curve is still inverted and tax receipts will fall for many states betting on overvalued property checks coming in because magician appraisers made values appear and disappear. Besides that, we are trying to fix the bleeding mess in Iraq that is sucking resources out of our own country. People fail to examine that cities in our own nation like Detroit are sinking into oblivion yet we are pumping billions into a war that is nothing more than an exercise in futility. Now we have to fix the mess we have created for nothing more than the moral imperative. What does this have to do with housing? A lot actually. The media is fixated on Iraq and anything and everything to do with war as demonstrated by the midterm elections. The last thing Joe Public is going to care about is some idiot Orange County boob that bought a home on an Option ARM mortgage when we have 125,000+ troops trying to figure out a culture war that spans two millennia. We are in Babylon as the richest man but somehow cultural differences do have a major impact on how one perceives freedom.
With that said, there goes the safety net. Keep in mind that 40 of 50 states did not experience a crazy glue sniffing bubble like we did. Many states did get a halo effect and went up 10 to 15 percent more than usual but not 100 to 150 percent like Bakersfield, otherwise known as Texas in California. Nothing against Texas or Bakersfield, love both places, but why is Bakersfield $200,000 more than Austin? In fact, Austin has a larger booming economy, same weather, better schools and better homes for your buck. Again, the California factor will hit hard in areas that don’t have the beach and sun below one hour away and only went up because geographically they were in the golden state map.
2007 will be an enlightening year for many. The soft landing talk is now gone. How will we deal with our economy in the face of a war that is draining our resources? And how will the public react when they realize the government cannot help their falling home prices? Do you think the sympathy of those in North Dakota, Kansas, Alabama, Minnesota, or even Wyoming will compute with the exotic tribal finance dance we are doing on the coastal nether-regions? Those in the housing game think that the government will step in and save the last dance for many but this thing has political implications. And just like real estate, all politics are local as well and this does not bode well for those hoping for the fabled soft landing.
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