It is clearly no surprise to anyone that housing is in a major slump across the country. What seems to be taking people by surprise is the rapidity of how quickly the market is retracting all the gains that it had made during the previous years. California faced many of the benefits during the peak of the housing bubble. Conversely, it is now facing major pains as the correction works itself through the system.Let us examine the numbers released by the California Association of Realtors in greater detail to see exactly what is happening:
The Case-Shiller Index, which tracks same home sales over a period of time instead of aggregate median prices per month, has dropped nearly 10.7 percent on a year over year basis. Most analyst favor the Case-Shiller Index because it looks at a single home and tracks it historically over time giving a better and more reliable indicator of the health of a home’s value. The drop is the largest drop ever experienced by the 20 city index since its inception in 2000. The index also tracks a 10 city index which dropped an astounding 11.4 percent which is a record drop since data started being tracked in 1987.Nearly all cities in the index reported losses. Here is a brief list of some of the year over year drops:
Unless you’ve been living under a rock, you are probably aware of the JP Morgan/Fed orchestrated bailout. The amazing thing about this entire situation is how quickly Bear Stearns went under. In the matter of one year, the once fifth largest investment bank was bought out for a pittance of its once mighty price. Bear Stearns has a long and storied legacy going back to 1923. Bear has lived through numerous recessions and the Great Depression. The company has approximately 14,000 people and as of last November, was generating a net income of $233 million.
Warren Buffet: Dow 24,000,000. Impossible Returns in an Impossible Stock Market. California Housing $3.4 Million Median.
Many of you I am sure have followed the investment advice from the richest man in the world, Mr. Warren Buffet. There is good reason to follow the Oracle from Omaha. Take a look at historical returns from his Berkshire Hathaway:
As many of you may or may not be aware, the next big thing that is pushing mortgage lenders and financials into the ground is margin calls. What is occurring in the market is companies leveraged to the heavens, are now realizing the stark difference between liquid and illiquid assets. Take a look at Thornburg Mortgage:
In two days, the market relinquished all weekly gains and looking at market fundamentals there really is very little doubt as to why this occurred. This past week, the two large mortgage behemoths Fannie Mae and Freddie Mac announced record quarterly losses. We also got a report that the housing market dropped at its fastest rate in 2007 from anything that we have on record. But there are areas that are on a massive tear and will continue going up because of inherent imbalances in our economy. In Investing in Foreign Currencies: Recession Proof Investing we discussed various ways you could protect your portfolio from recessionary forces.
First, we need to highlight what our forecast is for 2008. Read More