-- Posted Thursday, 17 August 2006 | Digg This Article
| Source: GoldSeek.com
Rick's Picks
Thursday, August 17, 2006
For investors who'd rather be smart than lucky
Can you spot the glimmer of wishful thinking in the following headline, culled from the San Francisco Chronicle ? Here it is, just as it appeared in Wednesday's editions above the fold, front page: "Home sales fall as prices flatten // California registers country's third-biggest decline in volume as red-hot market softens". "Softens"? In our dreams, maybe. Do you recall any "red-hot" markets that merely softened? Of course not. Red-hot markets do not soften, they go phwishhhhh, like a glowing horseshoe when it is plunged into a bucket of water. And it doesn't matter whether we are talking about a red-hot market in baseball cards, 1950s hubcaps, Depression glassware or Cabbage Patch dolls – the ending is always the same: Speculators get stuck with mountains of unsold inventory, their customers with goods that could not be re-sold, even at huge markdowns. Will such a day ever arrive in the housing market? If you live in Florida or Arizona, it's already here. Those are the two states that "beat" California in the latest national ranking of imploding real-estate markets. The Golden State suffered a 25.3 percent drop in sales of single-family homes and condos between April and June compared with the same period a year ago. Imagine how bad it must be in Arizona and Florida if a 25 percent drop is only worth third place.
As we might have expected, the president of the California Association of Realtors sees only a silver lining in this dark cloud: "Don't look for any big declines in the foreseeable future," said Vince Malta, "because the underlying situation is still strong." If so, it's hard to see where the implied buying power will come from, since almost no one living outside of California can afford to move there. Malta must think that California homeowners trading up will continue to bolster property values. That's worked with home prices increasing 10 percent or more a year, but can it continue if values are stagnant or even -- heaven forbid – falling?
Like many of his colleagues, Malta sees pockets of strength, including in San Francisco and the Peninsula, as helping to support prices in the region. But Fannie Mae economist David Berson is not so sanguine and sees troubles mounting at the margin. He points out that the inventory of unsold homes on a nationwide level has risen, and that at the current pace of sales, it would take seven months to clear out all of the single-family homes now on the market. Berson notes as well that in many markets, existing sellers will have to compete with a large number of unsold new homes – about 570,000 nationwide as of June. "We've never had more new homes for sale," he said. Berson is also worried about what might happen to the large number of so-called non-traditional mortgages – often favored by first-time buyers in pricey markets such as the Bay Area – as interest rates rise. We've been wondering the same thing ourselves, and for quite a while. We'll have our answer soon enough, since more than $2 trillion worth of variable-rate loans are set to adjust over the next fifteen months. If you haven't jumped into the Bay Area real estate market yet, there's never been a better time to keep waiting.
***
Seminar Set at Fort Mason
You'll want to mark November 11-12 on your calendar as the date of the San Francisco Hidden Pivot Seminar. The two-day class will be held at Fort Mason over that weekend, so if you're interested and haven't contacted me yet, please let me know via-email as soon as possible. Fort Mason has great views of the bay, a giant parking lot, and is well serviced by the Municipal Transit System – an ideal location for the event.
***
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in i ssues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless expre ss written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 17 August 2006 | Digg This Article | Source: GoldSeek.com
