What Did I Tell You? If a Butterfly Flutters in Brazil The Subprime Market Will Collapse. Dow Down 415+ Points.

As I mentioned last week, the catalyst of this global credit meltdown is the subprime market. After today’s global massacre, the Dow has had its worse one-day loss in 5 years. Given that China and Japan are tightening their credit standards, the market is now realizing that the piper must be paid. The definition of subprime is giving loans to riskier clientele and China took it in the shorts for a 9% loss across Shanghai’s major index. But who cares right? All this isn’t interrelated. After all, we can isolate ourselves as a nation since everything is made within our borders. Whoops, maybe not. Well at least we have one of the highest savings rates right? Nope. This entire Ponzi credit financing orgy was good until it wasn’t because lending was so loose it would make Paris Hilton seem like a saint. The negative news coming out of the housing sector is growing exponentially; bubble bloggers are trying to digest the information but it is equivalent to drinking water from a fire hydrant.

The Major Sell-Off

We just witnessed the worst one-day sell off since September 11, 2001. And pretty much the negative news out of Asia is that credit standards will be tighter. How in the world is this bad? If anything, this is symptomatic on how much the global economy, financed through 1st world real-estate, was based on ridiculous credit. Then Greenspan has the gall to come out and issue a warning that we may be going into a cyclical recession. Oh, you mean the one we should of experienced over fiver years ago except you took rates down to Chinatown? Thanks for that insight señor Greenspan.

Subprime Going Down in Flames

Countrywide Financial has come out publicly stating that they estimate that 40 to 50 minor subprime outfits are failing daily. Not exactly a vote of confidence for this industry. Aside from the fact that major players like Novastar and New Century Financial have been hammered these last two weeks. The game is over for these subprimers. I get a kick out of all those perma-bulls talking last week that the subprime implosion meant nothing because it is such a small piece of the pie; what happened today is a global call putting a stop to the credit spigot. Considering we didn’t have a national emergency the Dow dropping like this is rather significant, especially for the housing market. Not only that, this shows how dependent we are on China and Japan buying up our garbage credit and financing our consumer spending panty party.

Be Cautious of the 2007 Cassandra Call

So what can we expect for the remainder of 2007? Considering we are not even past Q1 let us sum up what has occurred in the past two months:

• Housing is falling nationally. In certain regions, there IS a housing crash; Florida, Arizona, and parts of Neveda.
• Credit standards are becoming more stringent. The subprime market is now finished. You can put a fork in it.
• Global credit standards will become tighter (read normal) because we have been living in Wonderland credit country.
• The sentiment is that we are heading to a recession by yearend.
• Precious metals and commodities are back up.

But then we will have the folks still living in the past thinking that what we experienced is a minor bump in the road. Forget the stats that income has not kept up with pretty much every necessity of life including college, housing, and healthcare. Yes, you can buy a HDTV for a cheaper price but last time I check HDTV boxes weren’t big enough to live in, unless you live in San Francisco then you are talking about $400,000. So the warning has been issued and all bubble watchers aren’t shocked by what is going on. In fact, you should be profiting from this mess because it is so blatanly obvious. It is like playing tennis without a net, like fishing in a barrel, like JV playing the Lakers, or any other comparison you can make. Pull up the balance sheet of many lenders; run the numbers. Short these stocks. Rebalance your portfolio. Make sure you have the right asset allocation unlike the “millionaires in the making” on CNN. Are you kidding me? These folks have about 80% of their assets in “equity” and claim to be making it. Yeah, let us revisit these people in 2008 and see where they are at. Anytime you put all your eggs in one basket and that basket falls, you are screwed.

But of course we know these folks understand the real estate cycle and the global implosion of easy credit right?

What are your predictions for 2007?

True American Idol: Subprime Mortgage Lenders Send off a Blast Heard Around the World.

After searching and debating endlessly, we can now state that the catalyst of the housing downturn is subprime mortgage outfits. Many housing watchers have been sitting on the sidelines wondering what event or circumstances would prick the major global housing bubble. It is like watching a car chase on the 405, you know they will eventually catch the person, it’ll probably end bad, but you really don’t know the exact moment or thing that will stop the event. In effect, I am issuing a clarion call that subprime lenders are the first of millions of dominoes to collapse on this housing ponzi scheme. Yes, the call may not sound like an American Idol voice but let me tell you that more people will be affected by this housing collapse than those voting for glorified Karaoke all-stars.

First, let us take a look at a graph that I have used various times:

Let us look at the subprime market:



$1 Trillion in Loan Resets in 2007

With $1 trillion in loans resetting this year we are in a major game of cat and mouse. Close to $100 billion a month is resetting in adjustable rate mortgages and interest only suicide loans. Couple this with a housing market that is falling and you have a spectacle close to the shenanigans of the Anna Nicole case. For the past five years, we have been participating in the global housing orgy either actively or in spectator role. If a seller got in trouble he had two options, either sell the place at a higher price or refi into a longer term mortgage possibly with a cash-out refinance. Essentially the market gave these amateur buyers enough cord to hang themselves; not only that but it was under the guises of “investing.” Sound familiar? All these perma-bulls think that comparing housing to the technology boom is blasphemous. However, the market psychology behind both bubbles is the same; running to purchase an overpriced stock or commodity on risky terms. Think housing is a safe bet? Many newbie buyers are going to realize a hard lesson in leverage and real estate cycles soon…to the tune of $1 trillion.

What About Greenspan?

You don’t hear much about the maestro anymore do we? The great Amadeus of the housing credit party. Well let us recall that it is Greenspan after the 9/11 attacks that decided that we needed to prop up the economy from our very brief recession with easy credit.






All of a sudden with rates dropping, almost by serendipity, did home prices across the nation start going up. Coincidence? I think not. Of course housing raging alcholoic bulls would like you to believe that housing went up on its own merits and accord but unfortunately this is not the case. Wages have not gone up and inflation is still a threat, just ask our new resident HP LaserJet money printer, Ben Bernanke otherwise known as Helicopter Ben. This bubble is so ridiculous that even the aforementioned party heads have nicknames that connote their willingness to throw money at you as if you were in a JayZ video with a bunch of scantly clad women shaking their rears in your face. Okay, maybe that isn’t such a bad thing but back on track, the maestro setup an environment of easy credit access. Or as I like to call this easy credit access, the housing cocaine of the last 6 years. Good old Greenspan essentially gave every homeowner the ability to install a Diebold ATM on the side of their home and access money at their convenience. When 70 percent of our economy is based on consumption I think this was a smart move, don’t you?

40% of Subprime Loans are Liar Loans

Liar loans, no doc loans, fake-it-till-you-make-it-loans, mama didn’t raise a fool loans, or as we have seen in the mainstream media, no documentation loans have become a de facto part of the housing mania. 40% of all subprime loans are considered to fall into this category, a total of $400 to $500 billion in loans. Yet the question arises what happens when the market goes down and rates go up?

A big drop in subprime from NEW. So what exactly occurred here? As you can see above with New Century Financial many lenders are now taking a closer look at the mortgages they are receiving and kicking them back to mortgage companies for not vetting them properly. Not only that, but many mortgage companies make money on the margin and now they are getting doubly screwed. As of a week ago (this is changing daily since a set of things are now in motion) 21 subprime lenders have bit the dust or are filing for bankruptcy. Last week Novastar took a major hit in the similar vein of NEW.

Can’t Refi When You’re Underwater

This raises the major issue that you can’t refinance a home when you are underwater. I’m not referring to a Jacque Cousteau documentary but the fact that you owe more than the house is worth. See, in the last few years even a chimp buying a home would be able to flip it to his donkey neighbor and make a buck. Same thing with technology stocks; remember the infamous experiment of the chimp throwing darts at a bunch of tech stocks and making money? However, now that subprime implosion is on its way we realize that the piper must be paid. And the first to pay up to Tony Soprano is these subprime mortgage companies. Sorry folks, this is only the beginning and many of those following the housing mania realize that the worst is yet to come and many of us saw this a long way coming.

Easier to Buy than Rent!

Unbelievably it is easier to buy a home in California than to rent. If you rent, you have to have a security deposit and at a very minimum a credit check – I’ve also heard through the grapevine a pulse would be a plus but not required. Why do this when you can buy and do a cash-out refinance with no one digging into your background plus you actually get money instead of forking your hard earned moolah. Now that the tide is setting out, we can see who is swimming naked. Many of these folks were betting on turning around and selling their homes if they ever got in trouble. Too bad this isn’t the case and the market this summer will be flooded with these people realizing that their home is worth less than they owe. And this is the recipe of disaster because no longer is real estate the hottest deal in town. The subprime market is now showing us that housing can go down and go down fast; do you think banks will hold on to REOs forever? They’re not in the business of renting properties out so they will be the best indicator of market sentiment and prices because they will sell at the best price the market can get. Unlike many delusional sellers thinking they’ll get Alice in Wonderland prices. Welcome to the first phase of the housing implosion courtesy of the subprime market.

Real Homes of Genius: $80,000 off in San Fernando for 865 Square Feet of Joy!

You can tell we are in Los Angeles when the Oscars role into town, 80 degree weather in the middle of winter, and the smell of overpriced boxes rotting while inventory amounts. Yes, this is Southern California. Today we salute San Fernando for giving us the next Real Home of Genius. Today’s example is an exquisite 865 square foot masterpiece in wonderful San Fernando. Initially, these folks set the price back in September at $455,000 but felt this was too low so they boosted it up to $465,000. Let us take a look at the manic pricing below:



As you can see, they dabbled in little token drops here and there until this month they realized they had to make some drastic cuts. Nothing more motivated than a seller leaving the country in an imploding market. Here is another case of yesteryear housing syndrome while wearing rose colored glasses wishing for peak price levels like children hoping for Santa Clause. So you feel bad for these folks, heck they already dropped the price by $80,000 from their peak level right? Well let us dig a little deeper:



So don’t fell too bad, even at the current selling price minus 6 percent for selling fees they will profit by $86,900 (maybe that is there logic in dropping the price; we give you $80,000 and you give us $80,000). Unfortunately this home has been on the market for 5 months and not much interest either. In addition, with the collapse of the subprime market not many folks would have 10 percent down to come into this property and carry a beastly monthly nut on a regular 30 year fixed. Yes the relics of the past those 30 year fixed mortgages.

We salute you San Fernando with today’s Real Homes of Genius Award.

OC Down $42,000 in one-month. Where is the Mainstream Media?

Let us run a quick stat check:

December 2006 OC Median Price: $642,000
January 2007 OC Median Price: $600,000

That is a 6.5% drop in one-month. All those cheerleaders talking about double-digit declines that are impossible are sorely in the wrong ballpark. Keep in mind that 2007 has only started and we do not even have first quarter stats being reported. The sub-prime market implosion that is going on behind the scenes is making people in the know feel that 2007 is the year of change. With New Century Financial based in Irvine going south to Mexico we realize that eventually someone will have to pay the bill; only time will tell whether it will be the tax payer or home owners and speculators taking it on the chin. If you think the government will step in and intervene, you are sorely mistaken.

We all know how efficient large bureaucracies that cater to those with large capital can be especially when they have their motives at heart. The response will be as usual, an after the fact a day too late type of reaction. The government as we have learned throughout history is largely a defensive mechanism when it comes to intervening on things economical.

So what are people doing? We’ve all seen the U-haul rates of places in California going to other states. Let us do a fact check:

From Irvine CA to Austin TX; 26’ truck = $3,650
From Austin TX to Irvine CA; 26’ truck = $486


Guess where most of the middle class is going? There is a book called Life 2.0 by Rich Karlgaard where he discusses the phenomenon of middle-class families selling out of equity rich states and going to other parts of the country. By looking at the rates above you can tell where the demand is coming from. Even the L.A. Times published an article in their real estate section a few weeks back highlighting this change.

Again, why did prices drop so precipitously last month in Orange County? For one, let us look at the sales data. Year over year sales fell from 2,868 in 01/2006 to 2,400 in 01/2007, a drop of 16.3%. This is typical in the beginning of a bear housing market; sales fall drastically while prices follow in line. Why does this happen? Well go out to any local area or take a look at the real estate classified section. Currently sellers and speculators are living in real estate yesteryear hoping for the peak prices which will never materialize. So sales drop as these folks hold out and those that desperately need to sell do so but at market rates. And did you get the memo? We are in a buyer’s market. So prices are dictated by what is being offered while those educated enough to know about real estate market cycles realize that they now have all the time in the world.

What goes up eventually comes down especially in the OC where interest only exotic death defying loans are the mainstream way to finance a house. Speaking to a person in the know, Irvinerenter we are beginning to see that those that have the most insight into the market, builders are quickly liquidating and selling developments at losses to hedge their own bets on a collapsing market. Ask yourself why someone would leave money on the table if we are in a temporary dropping market? This is not the case since these folks see the writing on the wall and are quickly getting out. There is a condo complex coming online this summer that had prices at $499,000 last summer; as I drove by this past week they were selling these same units at $399,000 – still overpriced because they are nothing more than glorified OC stucco apartment boxes. Point being, these builders need to unload because they do not have the luxury of a landlord of simply renting out the place and waiting the market out. Interesting to see the market unfold eh?

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Are you a Don Quixote or Hamlet of Housing?

Reading housing bull blogs and reading housing bubble blogs presents an interesting insight into the psychology of the current housing market. Most folks are moderate regarding the housing situation meaning they want to purchase but are fundamentally torn apart because they realize prices are just too expensive. These people understand that in order to be wealthy one must own some sort of real estate. Renting unfortunately is not a long-term strategy to success; however over paying is a guarantee of struggling both mentally and economically in a declining market. Just imagine buying a home at peak price only to see your home lose $100,000 or $200,000 in a matter of a few short years; think this isn’t possible? I’ll give you an example of an area in Southern California later in the article to show how this is possible and occurring.

Don Quixotes of Housing

So back to the topic of the dual psychology of the housing market. We have the interesting phenomenon of the Don Quixotes and Hamlets of housing. Don Quixote is exhubrant, one-dimensional, dogmatic, and totally immersed in his vision of the world. Even if reality is otherwise, Don Quixote is adamant about his belief and he is a person of action. These folks are your typical perma-housing bulls. Even if the Walls of Jericho are crumbling they are blissfully happy chanting their mantra of year-on-year appreciation. Don’t underestimate the Quixote’s of the market, they take action and do not sit on the sidelines. They practice the philosophy of shoot, fire, aim. These people have kept the market afloat in times of economic nonsense. The subprime market is overflowing with these people. The history of action, the history of decision making belongs to the Don Quixotes.

Hamlets of Housing

Then we have the Hamlets of housing; the over-analytic and multi-dimensional folks that examine every nugget of the market. They spew data as if water falls came out of their mouths. Each housing head that has a comment is quickly refuted with thorough data and is usually left speechless. They provide soliloquies on the nature of housing and what has fueled the bubble as if Socrates was their mentor. Yet many of these folks are stuck in the analysis paralysis stage. They believe so much in their data and are driven by analysis that it is highly unlikely that they will ever buy, even if prices tumble as they will. These folks will ponder housing as a life and death matter and fail to realize that time is also a key ingredient in making successful business decisions. At times these folks are criticized for sitting on the fence and never making a move; and there is some truth in this. Unfortunately, not taking action is just as dangerous as making rash decisions. They follow the mantra of aim, aim, and well what does the meaning of “aim” mean anyways?

The Two Polarize the Market

These two different characters have incredibly polarized the markets; their extreme action on the housing market has created a place where moderates cannot and will not invest. And those that do take the plunge find themselves questioning their decision since housing has become such an expensive proposition. When two forces with dogmatic views push on a market as necessary as housing, there can only be one outcome and that is what we are seeing. Yet the tide has shifted; even looking at the hits on housing bubble pages has increased in the last few months. I noticed people landing on my page searching for “housing crash 2007”, “housing market decline”, “real estate bust”, and “why is housing going down 2007” and these searches have replaced more optimistic queries such as “real estate investing” and “real estate boom.” What we have left is a market were prices went so out of control that exotic financing products needed to be introduced into the market like Quixotes battle with the windmills.

Orange County Drops $42,000 in 1 Month

Reality and perception changes at the margins. Most moderate housing followers expected the current state of the housing market, this is no surprise. It comes as no shock then that last month in Orange County median price dropped $42,000 in one-month as reported by DataQuick. Keep in mind that this is approximately the national family median income and a large metro area has decreased this amount in one month. When prices go up as they have they can go down just as quickly; this is based on the fact that leverage is a double-edged sword. When things are good they are extra good; when things go bad, well we can picture Hamlet pondering life with a skull in his left hand.

What Does this Mean?

For the past two months the rhetoric has now changed in the mainstream media. I’ve noticed that these are the following words that you are seeing:

Stalemate
Stalling
Waiting
Holding-Firm

The Hamlets and the Quixotes are waging a sitting war while the moderate middle is playing a different game; REOs, short-sales, and banks trying to unload property from sellers that can no longer afford to play this game. Many of the Quixotes believe they will get peak prices because in their reality they can do no wrong, the one-dimensional belief system will keep a stranglehold on them until they are forced by an invisible hand to take further action. The Hamlets see that blood is beginning to spill on the streets only reinforcing their belief that housing is a bad investment decision. But the majority of people looking to buy in the middle ground will patiently wait and purchase when the time is right both economically and mentally; they need to have the analytical skills of a Hamlet but must be ready to swing the sword quickly as a Quixote when the time is right.

The Evolution of the Los Angeles Housing Bubble. 50 Years in Perspective.

I’ve been inspired to think about the last 50 years regarding the evolution of housing in Los Angeles. What was going on in the 1950s?

*Elvis Presley was hitting the scene with his rebellious music and fashion.
*Many jobs were in manufacturing and food processing.
*Betty Crocker was the model of food cooking and recipe development.
*The Ed Sullivan show was a major hit.
*Marilyn Monroe on the scene.
*One wage families the majority.
*Divorce was not as easy in the fifties.

So this gives you a general overview of the culture of the time. Not to give you visions of apple pie cooking in the oven and Lassie running out in the lawn but this is a snapshot of history. Ironically, a couple of things have made full circle; look at the recent death of Anna Nicole and the fame and fall of Martha Stewart. Ed Sullivan was about discovering talent and what about the current American Idol? History doesn’t repeat itself but it does rhyme to paraphrase Mark Twain. What about the cost of items? I found an article from a local Los Angeles city newsletter discussing the price of items fifty years ago:

Average Automobile: $2,156
Average Gallon of Milk: $1
Cost of a movie ticket: $1
Cost of single family home: $12,700
Average household income: $4,564



The interesting fact about the stats above is you see about a 10x multiplier effect working on many of the items. An average car now cost about $20,000, a movie ticket is averaging $10 in the Los Angeles area, and income in this particular area is about $45,000 per household in 2007. Unbelievably, housing is off on a multiple of 40x since the median home cost is $500,000 in the said area. As you can see, inflation has treaded rather evenly with the other categories except for that of housing. Now why is this? What else was going on in the fifties? We had a relatively booming economy coming out of World War II and many have called this the glory days of the United States. Jobs were plentiful and the Fed had rates at all time lows.

Sounds very reminiscent to today except for the fact that our major base of manufacturing jobs is no longer in the states yet we are the largest consumer of these products. Neither is food production a major source of employment. Many folks find themselves working white-collar jobs nationally. To narrow the scope to Southern California, the largest booming job areas in the last few years are directly tied to real estate and housing; bank financing, construction, and housing ancillary products. Think of the last category as the Home Depot’s and Lowes of our time. So essentially, we have been living off our homes for the past seven years. After the major attacks on the United States, the Fed went on a major credit flooding campaign lowering rates to near zero. Normally during a recession which we did have, housing starts and home prices retreat or fallback but instead we saw housing take an unexpected jump.



Not only did housing blaze a new trail, it went into uncharted swampland territory. No one can use past real estate cycles because we are truly in a unique, probably once in a lifetime housing bubble fueled by lose credit and a real estate industry that is enabling risky behavior. In addition as I discussed in a previous article many of these enablers are now suddenly making folks go cold turkey on the housing bubble. The game is essentially over yet those still partying have yet to receive the memo. First payment defaults are on the rise as reported by DataQuick and mortgage fraud is running rampant throughout the industry.

Yes, 2007 is very different from 1957 even though many things seem similar. Unlike the 1950s we do not have a positive savings rate…:



We do not have fiscal responsibility, and a home is no longer just a place to live; a home has suddenly become the impetus for keeping the consumer economy of the U.S. going. It is the Lost City of Atlantis were all you need to do is plaster a virtual housing ATM on the side of your front door and pull out of your wallet your home equity line of credit. If this is too complicated just shell out your plastic and swipe away; even this is going to be easier with Visa offering credit cards that use radio frequencies. Yet at the end of all this virtual money chasing binge, we are left with an immense deficit that needs to be paid back, with no savings! When will we start paying? Maybe that’ll be another 50 year story.

Filed in: Southern-California-Houisng housing-data real-estate

Did you Feel That? Housing Just Hit the Third Rail.

HSBC, the world’s third largest bank warned that bad-debt charges will be higher than 20% than originally forecasted. HSBC has been a big player in the United States subprime mortgage market so this news comes as a big deal. Signs of credit deterioration have risen to a crescendo, HSBC is warning about $10.56 billion in provisions; meaning they have no idea how bad these loans will get. Essentially they are starting to line their ducks in row getting ready for the implosion of many loans; remember $1 trillion in loan resets are scheduled for this year.

On another front, subprime connoisseur New Century Financial Corporation (NEW) took it in the shorts on Wednesday when it announced that it will revise earnings estimates lower because it did not plan to set aside enough money to buyback subprime loans that will go bad. Whoops!



This little announcement sent NEW down by 17% in after hours trading. Suddenly it doesn’t seem like such a smart idea to lend money to people with bad credit; could this be that maybe bad credit means that people may not pay your money back? Amazing how all of a sudden credit standards matter.

Let us continue on in the world of Wonderland. The National Association of Roosters (NAR) issued the following:

"After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing home sales to gradually rise all this year and well into 2008," NAR chief economist David Lereah said in a statement.”

Wow, we hit the bottom with one quarter of down sales and now we’re back on track for year-on-year appreciation! Thanks for the informative update David. Who do we believe? Folks that are running scared from subprime mortgages such as NEW or the warnings from HSBC, the world’s third largest bank? These folks have no creditability in the face of the outstanding, ethical, and masterfully insightful NAR. Again, we should always listen to what realtors say because this is the truth. We are suddenly starting to see subprime lenders go down like moths heading toward the light. According to the site Mortgage Implode O Meter 20 subprime ravers are now down and out. Did someone just hit the third rail?

Filed in: Southern-California-Houisng housing-data real-estate

Real Homes of Genius: $463,000 Price Reduction in Bell! I Just Saved Close to $500,000 by waiting 4 Months!

Most can spot a solid deal from a mile away and the above commercial lot in Bell is no exception. Whenever you can save $463,000 in four months, you are doing something right. How many folks make $100,000+ a month? Today we salute Bell with the Real Homes of Genius Award. Not only that, but we should create another section, the category of “I can’t believe I had the guts to list something so ridiculously high” and smile at the end of the day. These folks had initially listed this “high in demand” lot for $958,000. They proceeded to do the following:



Okay, so the first reduction of $323,000 didn’t bring any buyers to the table. After two months of sitting on the market the price was lowered another $140,000. Now we are in February and the property still sits. If anything, this property is a symptom of the housing bubble market mentality. What is running through the listing agents mind when he says “I have a great idea! Let us list this property for close to $1 million” and expecting someone to buy it only by doing radical and insane price drops? This strategy isn’t new; list a home for a price way over appraisal and reduce the price until someone bites. There are two reasons for this. One, there is the perceived belief to the buyer that buying at a “discount” they are getting a deal. Can you imagine telling your friends and family that you saved almost $500,000 simply by waiting four months? You will be Einstein in their eyes and a modern day J.P Morgan. The second point is showing “action” on the MLS. Most agents and buyers that browse the net have their settings to show reduced homes in certain areas. By lowering prices, the buyers market has a perceived notion that this property is having some movement when in reality it is the opposite; consider this the smoke and mirrors technique in real estate sales.

Okay, well maybe the property value is supported by the local population. Let us take a look at those statistics:



Average household income is slightly over $40,000 a year. Even for this commercial lot, what is going to justify the ludicrous price even after a $463,000 price drop? Again, another symptom of the Southern California Housing market. When the dust settles on this people will look back and wonder how did something like this get so out of hand?

Today we salute you Bell with the Real Homes of Genius award.

Filed in:
Real-Homes-of-Genius
housing-data real-estate Southern-California-Housing

The Map of Misery. If Misery Loves Company it must Heart California's Housing!

I’m sure many of you have seen the above glorious “Map of Misery” showing the percent of new and refinanced mortgages into more risky loans. Yellow and red fill the map as if hell hath no fury on those choosing to live by the sea. If you take a minute to look at the chart, you’ll notice that there is a magnetism toward these loans being bulked in the coastal regions. Ironically, we can adjust the colors on the map with red and blue and we have our 2000 and 2004 Presidential elections. Regardless of fundamentals, economics, and politics one thing still holds true, real estate on the coast is expensive. Real estate on the coast or near water is something that is innate in our human nature and necessity to survive. Societies in Egypt built around the Nile many millennia ago and our “elite” society still builds around Santa Monica pier and Malibu. When before water was gold and a basic human need, now we see water as a symbol of wealth and opulence; think of yachts and waterfront condos in Miami beach.

Yet to what extent does this water world cost bleed into the country and dry our reserves? We can see that the hue in the Southwest runs all the way from California, Arizona, Neveda, and New Mexico. Last time I checked Albuquerque was not close to Pacific Coast Highway and neither is Phoenix or Flagstaff. But this mass exodus of funds from equity rich coastal states had to find a place to sit and those states around big brother got the spoils of victory.

To what extent this running of the colors will go on is yet to be seen. Current Census figures show that vacancy rates for homeowners is at an all time high. What is occurring here is many 2nd home sellers are placing their homes back on the market only to create a glut of non-owner occupied inventory. In previous decades you would normally see folks selling their own home and moving out once they found a seller. The game has changed. These new empty nesters are creating pockets of brand new ghost towns in Arizona and Las Vegas; brand new homes sit empty waiting for buyers to come by.

The current housing market sentiment is that housing is a guaranteed way to make money. Look at the number of real estate seminars and housing gurus out there promising to make you rich. No doubt, they do not highlight the fact that housing has historically only appreciated at slightly above the inflation rate. And we are still in a holding pattern with folks snorkeling in the coral of springtime essence with the hope that in a few months cherry blossoms will bloom and home prices will continue their trajectory to the moon. The map of misery may say otherwise.

What say you?

Filed in: Southern-California-Houisng housing-data real-estate