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A Silent Crash In Home Prices

By: Rick Ackerman, Rick's Picks

-- Posted Friday, 22 September 2006 | Digg This ArticleDigg It! | Source:

Rick’s Picks

Friday, September 22, 2006

For investors who’d rather be smart than lucky 

With Bay Area homes sales hitting nine-year lows, there’s at least one economist who knows a bust when he sees one: “The market is flat and the bubble has popped,” said Chris Thornberg. And while some in the real estate business may have been encouraged by yesterday’s decision by the Fed to leave administered rates unchanged, Thornberg sees a problem that has been growing far bigger and faster than even the most pessimistic observers might have predicted: “This is way beyond the Fed,” he said. “It’s just so out of whack, it’s going to take a long time to clear out.”

Just so. Even with homebuilders doing all they can to stoke sales, inventories are mounting. Pulte Homes, for one, is offering a free week’s vacation and up to $99,000 in incentives to buyers at its 17 Bay Area developments. But it may not be enough. New homes in the area have been hit harder than any other segment of the real estate market, dropping 11.6 percent from a year ago. In dollar terms, this means that a home that sold for the median price of $649,000 last August would now fetch, on average, $574,000.

Who Remembers?

If you can sell it, that is. With buyers and sellers both holding out for better deals, sales in Alameda County fell 28.2 percent year-over-year, according to DataQuick, 23.5 percent in Contra Costa County, and a whopping 34.3 percent in Solano County. But are would-be sellers taking this menacing trend seriously? Probably not, since most property owners doubtless remain confident that whenever real estate prices fall or stagnate, they eventually will bounce back. Only old-timers who were around during the 1930s could recall a time when the status quo went so badly awry that home sales dried up for years.

This is why we should view the current weakness in real estate as the beginning of a silent crash. Price spreads separating buyers and sellers could conceivably continue to widen to an extreme before it finally dawns on the latter that the bottom has dropped out -- that the market is not coming back any time soon. meanwhile, the fact that growing numbers of buyers evidently are holding off in expectations of lower prices is the biggest psychological change to occur in the housing market since the early 1930s.


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 issues 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 express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. 

-- Posted Friday, 22 September 2006 | Digg This Article | Source:


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