Instead of having just one home today, I would like to salute the entire
As you can see from the upper-left hand corner chart,
When you buy a house the information isn’t reflected instantly. Unlike a stock, with a liquid market, once a stock is bought or sold the price is adjusted accordingly. What can I get for Microsoft stock today? Just log into your brokerage account and you will find out. However with housing this is not the case. The asking price may be $500,000 but the current bid may only be $400,000. If no one purchases and the seller stalls, then nothing really happens and the market continues down its path. When you sign a contract, the process is only beginning since you will need to acquire funding, produce title paperwork, and get all papers sorted out before escrow can close. This can be anywhere from 30 to 60 days. Once this process is concluded, then the data is reflected in current median prices.
This time is different since only in early March did we face the sub-prime meltdown and Wall Street shutting the doors on risky mortgages. The appetite is no longer there and the excess hasn’t filtered down to the data. In addition we have a new legion of highly paid unemployed industry workers looking for new employment. Take a look at this recent LA Times article about those laid off from New Century Financial. I’ll give you 2 nice little quotes:
“Brad Cottrell was a paramedic when a friend introduced him to the high-rolling world of sub-prime mortgage lending.
Within three years of landing a job with Ownit Mortgage Solutions Inc. in Agoura Hills, his salary had tripled. His wife quit working and they bought a 3,000-square-foot house in
“Erica Olsen knows it. She was an underwriting manager at New Century, and Monday marked the third time she had been laid off by a sub-prime lender. "It was just devastating," she said.
She didn't give up on the industry, though. The La Palma resident teamed up with a friend and colleague, Cece Sarno of Garden Grove, to start their own loan-processing outfit, CE Processing Group. Their goal is to grow so they can hire other workers who got pink slips from sub-prime lenders. They processed their first loan Tuesday.”
Let us examine these two cases. First, we have people making inflated bubble wages. We have someone making six-figures only by pushing an inflated asset. Now that the industry is well done like a steak, where else is he/she going to find a similar income? Somehow I doubt many of these folks have bachelors or masters degrees in some high paying profession. Then we have two women who still believe they are going to make it in the mortgage industry! Likely, their frame of reference has always been a positive [manic] real estate market and they have no idea what they just lived through is a once in a lifetime mania. They will no longer make what they once made, at least in housing, and this will be a hard fact of reality. What else can they do except open up another mortgage shop (yes, we need another one). Did I mention that delusions in Southern California run beyond
Sales Massively Down
If that 30%+ sales drop doesn’t shock you it should. Sales are drying up like
Only Higher Priced Homes Moving and Fraud
In addition only better priced homes are moving and square footage price is dropping. So the homes that do sell keep the median price floating high while the delusional sellers build up inventory with homes no one wants or could afford. In addition we know of many sub-prime $30,000aires buying over inflated homes assisted by desperate brokers and lenders. Mortgage fraud is peaking at a crescendo and stories are now hitting the mainstream media about folks getting over leveraged into homes they had no chance of paying. Even if the housing pundits want to run with this new peak price, let them. They are delusional and their rhetoric is like a pit-bull being cornered; but we housing bears are just as ferocious and like making money too. We smell their fear and realize that their time is up. They had plenty of warnings and signs were everywhere. But greed is strong and looking at the data we realize that they kept feeding the beast. Now the beast has a clogged coronary and no doctor is within site. Time for the battle of the housing bears and the housing bulls.