Sunday, August 12, 2007

Home Prices Plunge 50% in Florida Home Auction

We all knew the housing market was in big trouble but -50% in months, good grief! What is happening is that the housing market topped to end a 10 year bull market in real estate (stating the obvious here). At some point a fundamental limit must have been reached as way too many homes were being built and sold to people who simply couldn't afford them. Foreclosures began to spike in the last 6 months as three year adjustable rate mortgages from the later stages of the boom began to reset to higher rates (see chart below). So now all of these homes that were starting construction in the peak of the boom are on the market while banks try and dump foreclosed homes at the same time. In that story in the video above, it sounds like brand new homes were being auctioned off as fast as possible by the builders/developers who panicked to get rid of their inventory of unsold homes. The already weak market is getting whacked by liquidation of foreclosed homes also, as seen in this news clip about CA foreclosures:

For many homeowners who purchased in the last few years this has led to a state called upside down, where people have negative equity on their home. I don't see how this can be good for the consumer who accounts for 2/3 of our economy, recall the wealth effect. The worst part about it is that we are only in the early stages of a multi year process of mortgage interest rates reseting higher (see below). Ignore the collapse in real estate at your own peril or if you want some upside on the crash CFC puts should do well. When you have time, take a chance to watch Bill Moyer's look at the current crisis hitting the financial markets and how it all started with the housing bubble. Bill Moyers Part 1 , Part 2. We are just in the early stages of this thing people.

Many things are on my mind this weekend, I'll post some ideas on individual stocks later tonight.

1 comment:

pythagoruz said...

Countrywide (CFC) really fell apart this week. Any thoughts?