Dr. Housing Bubble 12/01/09

[Crewleader]

Shadow Inventory in 10 Prime Southern California Cities. How Pent up Inventory and Option ARMs are the new Front for the California Housing Market.

For a state like California the real question in 2010 will be how exotic mortgages like Alt-A and option ARMs react to recast dates and a slumping economy. It may be the case that some other states may be finding bottoms quicker financially but California will be wrestling with another $21 billion budget deficit in a matter of months promising additional gridlock. California lived and fell by the housing sword. We have one of the highest unemployment and underemployment rates at 23 percent. This hasn’t changed even though the stock market has been raging. Some states have already washed out a large portion of subprime mortgages but California holds 58 percent of all option ARMs. This is a uniquely California problem.

People have so much blind faith in the notion that somehow the stock market leads the way before jobs even recover. If you want to plot this trend on a chart it would look like:



At this pace, we are going to see an unemployment rate of 12 percent and a Dow of 20,000. Clearly there is a disconnect in the current economy. If we dig deep into the balance sheets of many companies, many of the short-term gains have occurred because of eliminating one of your biggest line items, employees. Now this might be a problem given employees usually use their wages to pay for a thing called a mortgage. So a few cents in profits for shareholders might be good, but this trend cannot continue. At some point companies need to hire AND earn solid profits. We are not close to seeing that given that the recent GDP growth was purely based on government spending. It is also important to understand that anything looks up when you are floating in the abyss.

http://www.doctorhousingbubble.com/shadow-inventory-in-10-prime-southern-california-cities-how-pent-up-inventory-and-option-arms-are-the-new-front-for-the-california-housing-market/