Housing Bubble Update

In SoCal, OC rents are going up... due to buyers getting priced out of the purchase market. Rental prices up 6.7 percent from the previous summer, the biggest rent jump in the county in more than four years.

Meanwhile up in NoCal
San Jose and Bay Area rents are going down.... average asking rent in San Jose down 25.6 percent from the peak reported in 2002. Over the past four years, rents have decreased 8.3 percent and occupancy has fallen 2.6 percent.

Funny how this inverse relationship exists between NoCal & SoCal, perhaps more people have flocked to SoCal as its price points are lower, also having lower wages, people get stuck and priced out quicker, that's all I can figure. Or maybe, both ends of the state did not "coordinate" their stories... say what???

For example I am hearing anecdotal evidence that rents in the nicer Long Beach areas have been soft for over 2 years, for example a 2 bedroom home on Treasure Island renting for $1500, and rentals on Naples Island sitting vacant for 6 months before substantial price cuts intice renters. These stories and the NoCal rental drop seem to fly in the face of the SoCal "Happy Days" media blitz. Any thoughts?

These are last weeks average 30 year rates with Fed Funds @ 3.75...today's margin spread @6.25 is 2.5% and remember these are averages between low entry point ARMS & fixed rate 30 years.

New York 6.15 percent with 0.21 point
Los Angeles 6.22 percent with 0.48 point
Chicago 6.25 percent with 0.01 point
San Francisco 6.25 percent with 0.2 point
Philadelphia 6.09 percent with 0.33 point
Detroit 6.1 percent with 0.25 point
Boston 6.21 percent with 0.1 point
Houston 6.16 percent with 0.5 point
Dallas 6.19 percent with 0.4 point
Washington, D.C. 6.04 percent with 0.62 point

Just think what the rates will be by Q106 when Fed Funds is 75 basis points higher @ 4.50.... When Fed Funds hits 4.50 we should see 30 year fixed @ 7.25% or higher and god help those with an existing ARM because the spread on 11th district is even higher.

Talk about delayed sticker shock on a low entry rate ARM, don't even ask what happens when the reassessed property tax bill shows up.... thats an infarction or stroke waiting to happen.

Meanwhile, Washington D.C. now faces what Boston already has, inventory at an all time high, houses are just sitting, too many investors trying to sell at the same time and prices are falling.

In Boston, just how slow is it? Speculators who bought earlier this year in the 500K range are already underwater. As a result, times are tough even for non speculators, just ask Kathy Devine.

The 37-year-old and her husband put their Hyde Park four-bedroom house on the market last November. But despite numerous open houses and four price reductions that dropped the asking price by $100,000 (to $479,000), Devine's place has yet to attract a single offer.

Can't wait for those insanely overpriced California, Florida, Nevada & Arizona homes to take their turn in the barrel and start dropping en masse, and they will. Anecdotal evidence is already showing $50 - $80K asking price drops from this springs prices in some California areas.

Here's the good news, if your not in the market that is, the purveyor of doom sez this is the tip of the iceberg, it hasn't even started to get nasty yet.

Just wait till after the impact of higher energy costs, the port of New Orleans, a nice recession and the impact of increased interest rates and property taxes have all taken their toll.

Should the new Fed Head pause Q1 06, this would be the last opportunity for those who have not already converted to a fixed rate loan. A pause is speculative and doubtful at best.

I am sticking to my guns, as I have maintained all along, this real estate bubble is a redux of 1989. But this time, its going to be 10 times worse due to low interest rate and cheap money induced speculation that is involved.

Couple this with low & no down, interest only, creative financing, lax and fraudulent loan qualifying underwriting criteria and a litany of subprime lenders, which has resulted in too many overleveraged and underqualified buyers.

I foresee a veritable plethora of defaults and cash will be King, just be ready to scoop up all those foreclosed bargains that the banks won't be able to sell at Trustee Sales..... I think right about the Summer Olympics in China 2008 should be the bottom or near, this would be just ducky, Peking that is.

Stock plays?? Short PMI, escrow, title, real estate, GSE's (Freddie & Fannie), mortgage lenders (subprime especially), homebuilders and the Reits. If you think they've tanked this year, just wait.

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