Friday, November 10, 2006

Real Estate, the Deer in the Headlights.

We can all be right in our assumptions. The key to that concept is that something can be true at one moment and false at the next. Notice everyone can be right, it just won't happen at the same moment.

Real estate fits into that concept. Everything you've ever heard about real estate can be true or false, right or wrong at any particular point in time. The bubble bloggers I believe, have correctly diagnosed the bubble, as very real at this point in time. What is not so apparent is the assumed collapse of the price structure of the housing market. Its not happening as fast as most would like it to happen. You hear the words "housing prices are sticky on the down side."

As you drive your car down the highway, due vigilance allows you to avoid accidents. But what happens if you are approaching another car head on in your lane going the wrong way? Both of you will take evasive action and swerve into the empty lane. Bang, you have a head on collision. So the point being, it takes at least two mistakes for a real accident.

The real estate market is not going to collapse on its own. Its a smoking gun. It points to impending issues. "Who financed all of this?" is a valid question, but the answer is really a moot point. The real question that needs to be answered is: "Who's going to pay for the clean up?" The sad part about that question, is that we know the answer to that question, don't we?

So here we get to the second to the last analogy. The real estate seller is like a deer in the headlights, he's not going to move (price wise) and he's probably going to get hurt in a falling market.

The other shoe still has to drop, what it will be I can only guess; Stock Market Crash, Fannie Mae Meltdown, or maybe an Earthquake. At this point, the real estate seller will begin to feel the pangs of panic.

An economics professor Nouriel Roubini got blown away in a 3 way TV interview last week on his assumption that we were in a recession. Here is a Link to his blog. The point being, is that he failed to mention that no one knows that they are in the beginning of a recession or depression until two years after the fact. Thats what really makes the home seller seem so much like the deer in the headlights.

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