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?