Real Estate: 2008 All Over Again – Dave Kranzler

TND Guest Contributor:  Dave Kranzler

This commentary is from a subscriber to my Short Seller’s Journal:

The 3% down loans seem to have brought in a lot of first time buyers into the market. I live in the east bay area of California, which is more affordable than San Francisco, or the South Bay area but still painfully expensive nonetheless. Rents are now the same as a mortgage payment on a home in the exurbs.  So a lot of people seem to be buying for this reason. They only look at the monthly payments but overlook the fact that when financial markets seize up and the music stops, you could be left holding the bag on a hugely upside down mortgage and can’t get out of a 30 year commitment by selling.

A friend of mine, who is a borderline novice in financial matters, just bought a home. He has meager savings and has jumped on the 3% down bandwagon. This is the guy who until I told him to pay off his credit card balances because of the usurious interest rate, had no clue the damage they were doing to his finances.   He was making minimum payments on them because he wanted to build up his savings –  I explained to him how by earning 0.01% interest and paying out 18-24%, his savings were getting depleted every month.

The Bottom line is people who are not too financially savvy are being lured into the housing market by the banks. I don’t know how long this 3% crap has been going on, but it seems that Banks are desperate and looking for newer segments of people to swindle.

Everyone has probably seen the report on NYC high end real estate posted in Zerohedge –LINK.  While the suburbs in Denver are still hot because of the huge influx of people moving here from California,  I’m seeing the same price cuts and inventory build-up  in Denver that is described in the ZH piece.  I get listings on just one central Denver zip code. Yesterday alone i received two price changes of 5% on listings over $850k.The inventory in that price segment is bulging.  Over the weekend I was hit with more than 20 new listings and price cuts all across the price spectrum.  I have received six more today – 1 new listing and five price reductions.

Now that the NAR is begging the Government to give debt-bloated college graduates even more debt to buy a crappy starter home, I can smell the desperation to keep the housing market’s “gerbil” running on the wheel.  But the gerbil is like a meth-addict that has been overdosed for too long with near-zero interest rates and recklessly lascivious Government mortgage subsidies.  Like the gerbil, the housing market is about to seize up and re-collapse.  It will be an event that is much more horrific than what occurred in 2008.

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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