Saturday, February 20, 2010
It Seems to Be Getting Dark in La-La Land
This article on real estate delinquencies is typical garbage reporting from the Los Angeles Times. I am providing the link for the data, but more importantly for the tone of the reader comments below the article. A year ago, there were arguments back and forth in comments related to articles like these. Many were bulls who saw a buying opportunity. Some were real estate agents arguing that it was a good time to buy.
I think we have reached the threshold. We are now in the middle of the secular real estate bear market and the decline is about to accelerate. Capitulation is a long ways off, of course.
Housing is dead for a generation. It is a place to live, that's all. One or two generations from now, the game will repeat and residential real estate will again get frothy and speculation will be back in vogue. The housing price to Gold ratio is going to continue collapsing.
People know they've been had in the bubble areas of the U.S. and they are getting even the only way they know how: by defaulting. This adds to the stress in the real estate market caused by the people who can't afford to make their housing payment. Walking away is the new normal in bubble areas, particularly in California where creditors have a limited ability to recoup losses regardless of the debtor's capacity to pay and/or assets. Walking away from mortgage debt is now acceptable to a critical mass number of market participants.
The moral hazards introduced by Wall Street and da bankstaz over the past few years are coming home to roost.