From coast to coast, sea to shining sea we are seeing this housing Wonderland. What does your gut say when you look at that place? Go with your instincts.

Sometimes a snap judgment is better than 200 pages of analysis by hedge funds. Just look at how well the sub-prime game is going. Supposedly they had it all calculated out.

http://www.mlsli.com/unidetails.cfm?mlnum=1914350&typeprop=1&CFID=18066427&CFTOKEN=54911043

LOL

The housing market is toast. Anyone trying to claim that housing didn’t go up in a large part because the Fed lowered rates is living under a rock. If you run a quick analysis you’ll see that there is a direct correlation between cheaper rates and easier access to credit (i.e., mortgages). Remember a few weeks ago when the Chinese market dropped over 10%? Why did it go down? The fear of tightening credit. What about the recent implosion of sub-prime lenders? Again, the fear of losing credit. In this case, many sub-prime lenders had their credit lines removed and now you can see the nations 3rd largest sub-prime lender trading in the minor leagues in the OTC market.

Next up is Alt-A mortages. That is mortgages given to decent credit buyers that for one reason or another didn’t want to document loans or went for a more exotic tasting mortgage. Ever watch late night infomercials? I do when I’m kept awake by seeing Real Homes of Genius everywhere in my neighborhood. These folks tout the most absurd risky mortgages that you’ll literally have a heart attack if you took it over to your real estate attorney. After watching these shows I open my blinds and see red for sales signs on homes that were bought only a few months before. I think to myself, “flippers” and move on. I spoke with one of these flippers and they funneled $60,000 in upgrades and will sell the house for $100,000 more. At least in their minds eye they will because the market is now gone. They’ll be lucky to break even or even come out with a 5 to 10 percent loss.

See, Collateralized Debt Obligations (COD) have essentially set a time bomb in the nation. There is nothing anyone can do now; well, aside from a public bailout but as a hardcore bear investor that is an entirely different subject. The Fed is stuck and looking at long-term rates they are essentially an emperor with no clothing because each time they talk tough the market does nothing. Banks? What are they going to do with all the REOs on their hands? They are setup to sell homes and be done with it - they are not setup as property management companies. Think of it this way, even if the Fed drops rates to zero you are still left with the fact that housing is vastly overpriced and CODs are now starting to show signs of cracks because many had sub-prime loans in their portfolios. Would you buy a Hyundai for $50,000 over 20 years if your payment was $208 a month?

So the argument can go further that housing ALWAYS goes up and a car, well that is a depreciating asset. Okay, but the price of current housing has many things priced in such as:

1. A market with low foreclosures
2. Moderate to High annual appreciation rates
3. Easy access to future buyers via Wall Street
4. A Fed that is supportive of debt
5. Mortgage lenders having flexibility to all buyers

Of course eliminate one of these items and what you have is a house of cards. What we have eliminated (or are starting to at least) is number 5. Wall Street is spooked that foreclosures are jumping (see number 1). So this pushed down #3 and on and on. We are in a vicious circle and frankly I’m not sure how low we will go but we are definitely going down.

Now after that pep talk don’t you feel like going out there and being a patriotic American and buying yourself a nice home?