Dr. Housing Bubble 05/07/09

[Crewleader]

10 Reasons Why Buying a Home in Southern California today is a Mistake. California Housing and Financial Market Analysis produces no Green Shoots.

The real estate siren call is echoing through the Southern California landscape. You get the sense that we are back in 2005 and 2006 when real estate was the golden child of the investment world. How quickly the psyche erases tough losses when it wants to find profit. If you talk with some people, you would think that the March 9th low in the stock market and the end of the world sentiment at that time has some how evaporated into the California springtime air. Yet one thing remains. The fundamental factors that have depressed and caused the California real estate market to crash still remain, especially here in Southern California. The U.S. Treasury and Federal Reserve are leaking results from the stress tests (can’t call it a test if you can’t fail) and even with worse than expected information, the market still rallies.

I’ve argued that the stock market is now completely disconnected from Main Street. Even with GM announcing a 1-for-100 reverse stock split, basically telling common shareholders the stock is worthless, the stock only moves slightly down. This “ignore reality” sentiment is exactly the kind mentality that led up to the California housing bubble. We got rid of 3-times gross income ratios. Ignored the tried and tested value of 30 year fixed mortgages. We also learned in bubble mathematics that down payments are for chumps. That flawed calculus obviously came back and bit us in the rear end yet here we are, in the midst of dealing with the fallout and many are eager to jump back in! In this article I will mainly focus on Southern California real estate but I will also talk about California overall. I’m going to give you 10 reasons (I can give you more) why buying a home right now is a bad move.

Reason #1 - Notice of Defaults and Foreclosures



Take a really close look at this chart. Do you see in the chart how in Q4 of 2006 notice of defaults (NODs) started spiking off the charts? This was the canary in the subprime coalmine telling us to gear up. Yet people kept on buying only to see the market collapse in 2007 and 2008. It was a warning sign. Many pundits in the industry point to the Q3 and Q4 2008 drop in NODs and foreclosures yet fail to mention one thing. This was a government sanctioned moratorium. Sales did not increase by any sizeable portion to justify the fall. What caused this drop was artificial.

http://www.doctorhousingbubble.com/10-reasons-why-buying-a-home-in-southern-california-today-is-a-mistake-california-housing-and-financial-market-analysis-produces-no-green-shoots/

[tdavis]

1. interesting

interesting