patrick.net

a new renaissance and a new rebirth of renewal....

Glen Says:
Land is usually a good inflation hedge. But not a 2 BR fixer on a postage stamp lot. Better to buy raw land, IMO. One hassle-free way to do this is to buy stock in a company that owns land. I own a few shares of Tejon Ranch Company (TRC). They own a ton of land along the 5 freeway between LA and Bakersfield (about 270,000 acres–bigger than the City of LA). The market cap of this company is only around $660 million, for a non-bubblicious price per acre of less than $2,500. Of course there are problems–the land is remotely located, it is near a fault line (but then so is the BA), and the company earns very little money off of the land currently (Walnut farms and such).

Raw land is intrinsically a riskier proposition than land with something on it. It can be rezoned easily away from the purpose you hoped for. And you might be dead by the time it gets developed up and starts to pay off. Assuming we can even consider such squatting on land to be ethical.

Still, I imagine the stock would do well in an inflationary, dollar crash scenario. And the company has development plans in the works. Has anyone else looked at this stock? Or does anyone have other ideas on how to hedge the inflation risk while waiting out the housing bubble? I know gold and other commodities are options, but these seem less correlated to California housing prices than TRC.

There was a conman operating in England and Australia who was selling 'prime land in the English countryside about to be developed. I have inside connections with the royal family.' These guys bought up small farms in areas and spruiked that they would one day be developed. However, local councils had no such plans. Some of the areas were floodplains that would never be developed. They were selling $10,000 shares in this speculative venture, known as 'land banking'.

The conman's previous venture was selling 'aged Scottish whisky' which was actually low grade malt whisky sold at high prices.

This is not investment advice, of course–do your own due diligence.

good advice...

Article "A QUEEN, A PRESIDENT & A SPRUIKER"

Australian property investors take note. ELS has set up an office in Australia.

ELS is an abbreviation for European Land Sales. It’s not a company, it’s a partnership. The boss of ELS is an English spruiker, Stephen James Cleeve.

On February 29, 2000, Cleeve received an eight-year ban prohibiting him from acting as a director of a company. Hence the reason ELS is a partnership.

Two months prior to his eight-year ban, Stephen Cleeve made headlines in Britain’s largest selling Sunday newspaper, The News of the World. He was said to be one of two ringleaders in a whisky scam in which £60 million ($AUS150m) was swindled from thousands of investors.

The reportedly fraudulent scheme involved enticing consumers to invest in barrels of malt whisky which would appreciate in value. According to experts, Stephen Cleeve was selling low-grade malt at top-grade prices.

Glossy brochures offered high interest returns on barrels of whisky which investors believed were worth between £1,145 and £6,000. The real value was between £400 and £600 a barrel.

Today, Stephen Cleeve – through his ELS Partnership – is still producing glossy brochures. Only this time, instead of pushing an investment in English whisky, Cleeve and his salespeople are pushing an investment in English property. Something called 'Land Banking'.

It’s not about ordinary land where homes can be built, it’s about land which is presently zoned for agricultural use only.

The pitch in the brochures is that the land has “a good chance of planning permission at some stage in the future.” ELS buys a few acres and then sells small “plots” (apx 0.05 of an acre) to individual investors. In doing so, Cleeve and his salespeople get millions immediately while investors must wait to get something. Maybe.

Assuming that everything is respectable and that Stephen Cleeve is not the conman that some journalists, many past investors (in his whisky deals) and his critics believe, the key question today’s investors will want answered is this – “How long will it be before planning permission is obtained for the land?”

In June last year, a British journalist from the Guardian was told by Trevor Pillay that planning permission “should take about two years.”

According to a British solicitor, who has been following Stephen Cleeve’s activities from his whisky dealing days to his current land dealings, the land that ELS is selling has “little or no chance of obtaining planning permission in the next 50 to 100 years”. Some of the land is reportedly “on the flood-plain and in the green belt with no development potential.”

In an e-mail sent to an investor in November, an ELS salesperson wrote, “The sites that we offer to our investors are sites where the land value is sure to increase.” According to the spiel, the “value will increase dramatically within a time period of two to five years.”

oops, that's a bit long, sorry...

Here is a recent posting from a local Realtor's blog, in San Luis Obispo County:

"Where are the Buyers???

July is starting off to be another bad month for Central Coast Home Sellers. Since the 1st, we've had
- 257 price changes
- 159 new listings
- 35 Back on market

and just 76 Pendings.

Inventory has increased by 128 homes."

The blog posting from the next day has another chilling topic :

"With the changing housing market, the topic of "Short Sale" is being brought up on Realtor message boards. Here's what a Short Sale is....

Say a homeowner can't make their mortgage payments. They put the house up for sale and get an offer that, when all costs of selling the home are deducted, is lower than what they owe to the lender. Instead of going into foreclosure, the lender accepts the lower amount.

The reason lenders would entertain something like this is because of the costs associated with the foreclosure process. There is a got'cha though. The amount the Seller is short is viewed as taxable income to the Seller."

All indicators are things are going to get MUCH worse. I wonder how many years it will take for this storm to pass, if it ever will, or when things will collectively hit "rock bottom". The bottom of the market, if discernible, will obviously be the time to buy for those who hold out, and a time for owners of properties bought in recent years to have any hope of returning to days when they had some equity.

An Update from Michael Moore (and an invitation to his film festival)

Friends,

Just a quick note to let you know how things are going.

Back in February, I asked if people would send me letters describing their experiences with our health care system. I received over 19,000 of them. It was truly overwhelming as we literally took a month and read them all. To read about the misery people are put through on a daily basis by our profit-based system was both moving and revolting. That's all I will say right now.

We've spent the better part of this year shooting our next movie, "Sicko." As we've done with our other films, we don't discuss them while we are making them. If people ask, we tell them "Sicko" is "a comedy about 45 million people with no health care in the richest country on earth."

But like my other movies, what we start with (General Motors, guns, 9/11) is not always what we end with. Along the way, we discover new roads to go down, roads that often surprise us and lead us to new ideas -- and challenge us to reconsider the ones we began with. That, I can say with certainty, is happening now as we shoot "Sicko." I don't think the country needs a movie that tells you that HMOs and the pharmaceutical companies suck. Everybody knows that. I'd like to show you some things you don't know. So stay tuned for where this movie has led me. I think you might enjoy it.

At this point, we've shot about 75% of "Sicko" and will soon begin putting it together. It will be released in theaters sometime in 2007.

And if you don't hear much from me in the meantime, it's only 'cause I'm busy working. I realize that my silence doesn't stop the opposition with their weird obsession for me! It seems like not a week passes without my good name being worked into some nutty news story or commentary. (I have to say, though, I did enjoy Tom Delay blaming me and Ms. Streisand for why he had to resign from Congress!)

I hope all of you are enjoying your summer. If you're near the state of Michigan later this month, I'll be putting on the second annual Traverse City Film Festival in Traverse City, Michigan. I've personally selected 60 or so movies that I love, many of which did not get the notice or distribution they deserved. Others are brand new independent movies and documentaries that I hope will find a large audience when they are released.

The film festival will take place in this beautiful town in northern Michigan, from July 31st to August 6th. Appearing in person with their films will be David O. Russell ("Three Kings"), Lawrence Bender ("An Inconvenient Truth"), Terry George ("Hotel Rwanda"), Larry Charles ("Borat"), plus Jeff Garlin, Jake Kasdan, and other filmmakers. We're also going to show every feature film made by the greatest American director of all time, Stanley Kubrick. Joining us in person will be his executive producer, Jan Harlan, and actors Malcolm McDowell ("A Clockwork Orange") and Matthew Modine ("Full Metal Jacket").

Tickets go on sale today (July 7) at noon. To purchase your tickets (all seats $7), click here or call 231-929-1506. Last year we had 50,000 admissions, and we expect most films to sell out early this year.

Well, that's it for now. Bush has quietly closed down the special section of the CIA that was devoted solely to capturing Mr. bin Laden, so we can all rest easy now. I wonder who his next scary evildoer will be. A fearful nation awaits its marching orders, sir!

Yours,

Michael Moore
mmflint@aol.com

P.S. Don't forget to visit my website which I update every day with all the news the Bush stenographers (a/k/a "Mainstream Media") fail to put on page one.

oops, i did it again...

I just looked at an old file and found that when I bought an apartment in 1990 with a Home Savings variable rate loan at 2.25% over the 11th District Cost of Funds index (aka COFI) my interest rate was 10.619%. The payment on the $2mm loan was $18,773 per month. In 1994 the payment was down to $12,083 (a 35% drop). Despite the big drop in payments from 1990 to 1994 thousands of property went REO and dozens of CA banks (including every bank based in San Diego) went under.

Below is the 11th District Cost of Funds index showing the drop from 1990 to 1994. Most small commercial loans and many home loans in the 90’s were tied to COFI with the spread over the index usually from 2% to 3%:

January 1994: 3.822%

January 1993: 4.360%

January 1992: 6.002%

January 1991: 7.858%

January 1990: 8.369%

Below is a graph that shows the massive ugly drop in CA real estate values in the 90’s and shows how massive the drop that is just starting will probably end up (the inflation line at the bottom):

http://www.housingbubblebust.com/OFHEO/BubbleGraphs.html

http://www.housingbubblebust.com/Fed/GDPvsHSG.html

Former, I think this is the graph link you wanted to share. Thanks for the interesting site.

I posted the Reasons it “is different this time” below:

Then Randy H. wrote:

> As to FAB’s “data”, I have provided links to my
> hard data, as compiled by HSBC, annotated
> in hundreds of pages in a PDF, and downloadable
> as analyses in Excel. I’d like to see FAB’s data
> aside from anecdotals.

I didn't think that anyone would even debate anything I wrote below. I chalange Randy to post anything that "even calls in to doubt" anything I wrote...

1. Last time interest rates fell from 1990 to 1994 (This time they are on the way up)
2. Last time most people made at least a 20% down payment (This time almost no one made a 20% down payment or if they did they pulled it out with a HELOC).
3. Last time huge numbers of long time owners were not refinancing to increase leverage since they were happy with their low interest loan (This time with rates falling as the bubble got bigger most people increased their leverage).
4. Last time most people had fixed rate loans (This time most people have adjustable).
5. Last time we didn’t have an internet (This time a company can move an entire division out of CA and with e-mail and video conferencing no one will notice the difference).
6. Last time almost every loan was amortizing (This time most loans are IO).
7. Last time China was a backward communist country (This time everyone that manufactures something in California is trying to increase profits buy using inexpensive Chinese labor).
8. Last time India was a poor country with cows walking past starving people (This time is a source if hard working engineers).
9. Last time everyone working in Retail in CA had a fairly safe job (This time with internet shopping and big box categories killers we will probably have half the people in retail looking for a new job soon….

Is The Housing Bubble Fuelling GDP Growth?

yes, that too... the national Treasurer gleefully reported 'economic growth' for a while there...

empty, internal inflation, borrowing from Peter to pay Paul...

Correlations do not causality make. Or do you agree that it is the diminishing number of pirates in the world driving global warming?

But if it's correlations you want, then here is HSBC's data providing about 50 correlations to various elements of real-estate and the economy.

To take further issue with FAB's tangential data: what portion of the banking failures were due to commercial development lending? You do have a tendency to mix personal residential factors with commercial and re-income factors. Please tell me what I bought an apartment in 1990 with a Home Savings variable rate loan at 2.25% over the 11th District Cost of Funds index (aka COFI) my interest rate was 10.619%. has to do with proving residential SFH price stickiness?

If you can, I'll email it off to HSBC myself.

Randy H Says:

> Correlations do not causality make.

I know this…

> Or do you agree that it is the diminishing number of
> pirates in the world driving global warming?

I can prove that the number of pirates have no effect on the global climate…

> To take further issue with FAB’s tangential data: what portion
> of the banking failures were due to commercial development
> lending?

When the “real estate market” is good, it is good for commercial “and” residential property and when it is bad things are bad for both residential and commercial real estate. I looked at pools of bad loans and REO property from many many banks in the 90s and ALL had both bad commercial and single family loans…

> You do have a tendency to mix personal residential factors
> with commercial and re-income factors. Please tell me what
> I bought an apartment in 1990 with a Home Savings variable
> rate loan at 2.25% over the 11th District Cost of Funds index
> (aka COFI) my interest rate was 10.619%. has to do with
> proving residential SFH price stickiness?

When interest rates go up for commercial property they also go up for SFHs, when rates for commercial loans go down they also go down for SFHs (for all the same reasons). When the price per foot for homes goes up it almost always goes up for apartments in the same area about the same amount. If you graph commercial rents, commercial values and commercial loan rates they will flow with the residential numbers over the past 50 years…

Gen-X is priced out of S. Cali as far as I can tell, the boomers will sell out to the rich foriegn money escaping from whatever 3rd world revolution they helped bring about, remember Iran? lots of expartiats from Iran setteled in Westlake Village in the 1980’s. Do you think they will buy in Phoenix? or texas? hell no.

If things seem so easy to the boomers and so difficult to gen-x, all I can say is that perhaps they have better karma than us.

FAB,

Fine; I don't necessarily disagree...but would you care to show these graphs and data sources rather than narrate them? And again, what does that prove about stickiness? In fact, at first you were arguing that it's different this time, and won't be sticky. Now you're arguing that it wasn't sticky the past two times either.

I'm not at all concerned because real-estate is always sticky. Maybe it will be less so this time; maybe more so. But real-estate is non-liquid and transactional-friction heavy. Therefore, sticky. Real-estate is not arbitragable, therefore sticky. Real-estate is not an efficient market at either a macro or micro level, therefore sticky. When houses trade like stocks, sure then not-sticky.

Btw, I'd love to hear how you can prove that Pirates are not causal in relation to global average temperatures. Unless you're talking about a "statistical proof" vis-a-vis the null-hypothesis, which isn't scientific proof, then you cannot prove a negative. For every "disproof" you conjecture, I can concoct an accommodating theory of Pirates and Global Warming which you cannot refute scientifically. (This is why the burden is on me to prove that Pirates do cause warming, not the opposite).

DS said:
Raw land is intrinsically a riskier proposition than land with something on it. It can be rezoned easily away from the purpose you hoped for. And you might be dead by the time it gets developed up and starts to pay off. Assuming we can even consider such squatting on land to be ethical.

Sean, If you recall my original post, I did not suggest that everyone buy raw land indiscriminately. I just mentioned that I happen to own stock in a company which owns a lot of land in California, as I believe this is a cheaper way to protect myself if California land prices keep going up. I also asked if anyone had any better ideas.

Maybe my investment is a bad one--I am certainly open to that possibility--especially if you have any commentary that is specific to Tejon Ranch Co. But I was attempting to initiate a constructive discussion of how to invest while waiting for the bubble to crash. I'm not terribly happy about earning 5% in a savings account if/when inflation really takes hold, as I will be losing purchasing power. It is fine that you think raw land is a bad investment, but how about suggesting some alternatives?

I agree with the general sentiment here that the housing market is headed for a crash and/or long slow decline. I'm just trying to figure out what to do in the meantime. If you have any good ideas, please post them.

Is that Karma? It seems to me that you make your own luck…

You make your own luck, in this life or next. Working hard does not produce luck.

Seriously… i haven’t seen any RE distress in these two places. Darn.

However, East Bay and South Bay are doing less well.

IMO, Palo Alto now has the best pasta in the area.

I'd say, despite price reductions, I have yet to see many examples of SFHs selling below 2005 peak on this side of the bay.

Yeah, you are seeing 100K reductions, or even 200K reductions, but the initial price was entirely insane (20%+ on top of 2005 peak price). Weakness is showing on 2M or above properties, some of which are already selling at 2000/2001 price, but not in the 1M-2M market. It seems like there is a lot of support in the neighborhoods that most of us would like to move to.

Morgan Hill and Gilroy area is a different matter, but they are not on the dream list of most people here anyway.

Glen Says:
Sean, If you recall my original post, I did not suggest that everyone buy raw land indiscriminately. I just mentioned that I happen to own stock in a company which owns a lot of land in California, as I believe this is a cheaper way to protect myself if California land prices keep going up. I also asked if anyone had any better ideas.

who knows, you have to trust that they are selecting land wisely by proxy, as experts. assuming that you don't think there is something immoral in this continuing speculation over land, as the final outcome seems to be to dispossess people of the option of owning their own home in the interests of profit-making and shareholders. in choosing an ethical investment vehicle, there is a very fine line sometimes in deciding what sort of stock is 'ethical' when you drill down into all it implications for the social settlement.

Maybe my investment is a bad one–I am certainly open to that possibility–especially if you have any commentary that is specific to Tejon Ranch Co. But I was attempting to initiate a constructive discussion of how to invest while waiting for the bubble to crash. I’m not terribly happy about earning 5% in a savings account if/when inflation really takes hold, as I will be losing purchasing power. It is fine that you think raw land is a bad investment, but how about suggesting some alternatives?

i certainly don't mean to imply that the tejon ranch co is a scam company such as the one i posted. however i posted a warning in part to look out for hucksters in the ongoing real estate scam, and for people to think about the moral consequences of what stocks they're buying. buying a stock in a company implies you support their practices and raison d'etre, it doesn't let you off the hook. buying stocks in an arms dealership and living off the profits makes you just as guilty and involved as the arms dealer.

I agree with the general sentiment here that the housing market is headed for a crash and/or long slow decline. I’m just trying to figure out what to do in the meantime. If you have any good ideas, please post them.

i'm making a career of posting good ideas, mate. i just sent a 2 Mb post to the state premier, the city lord mayor and a raft of labor party thinktanks on ways of implementing affordable housing and reinstating a decent social settlement. i've ventured one or two suggestions in here also...

Muggy Says:

"Speaking of “out-of-wack,” I rent for $650/mo. what would cost me $2k/mo. to own."

In most parts of California, 2k/mo. to own would be insanely, low-priced
out of whack. 2k/mo. would be a dream come true in San Jose.

Where do you live? Muskogee, Tennessee? Podunk, Iowa?
Corndog, Idaho?

Interesting disparity...

The problem with that Comstock Partners article is that it is selective use of statistics. They point out the inability of economist consensus to accurately predict recessions, then they in the next breath talk about how Treasury yields predicted 9 of the last 10 recessions.

Significantly, in 9 of the 10 tightening periods the spread between the long-term Treasury rate and the t-bill yield narrowed to under 50 basis points.

Here's what they leave out: More than double that many tightening periods did not foretell recessions (regardless of what the article states). There is an old joke that goes "yield-curve inversions have predicted 20 of the last 10 recessions".

Surfer X/Michael Holliday,

Uh I hate to break it to you guys but it's not just the "Cali" of our youth that the boomers have "re-invented" and custom tailored for their second childhood. It the whole freakin country.

Chance favors the prepared mind.

Very true. Have you read the book, The Luck Factor?

Muggy,

From time to time we have our "resident expert" (George) bring us fresh meat from the FL debacle. As he's a FL realtor you can consider his posts "from the burning bush". Great guy, very well versed in all things Sunshine State.

Diversion time,

CatsThatLookLikeHitler.com

Muggy Says:

> Speaking of “out-of-wack,” I rent for $650/mo.
> what would cost me $2k/mo. to own.

There is a condo for sale at 2208 Vallejo in SF for $2,995,000 (MLS# 307478)

If I make a $600K cash down payment (and stop getting the $2,500 a month in CD income that comes close to covering my current rent in the area) my mortage payment will only be about $15,000 a month + property taxes of about $3,000 a month, HOA dues of about $1,000 and another $500 to rent a second parking space in the area (since the $2.9mm condo only has one space).

Things are out of whack when it is about $20,000 month more than I am paying now in rent to "buy" a condo (not a mansion with a 5 car garage, but a crappy condo with one parking space)...

San Francisco price data. You decide how hard or soft previous landings were.

First chart is median home prices 1975-2005 for the Bay Area MSA, in nominal terms.

Second chart is the real median house price growth for the same period. Note that nowhere did median real home prices drop faster than 8% in any given year. 1981-82 barely broke -5%. 1991-1996 peaked at -8% in 91, then settled back to about -5% until 95, then drifted back to 0%.

Third chart is the same as the first chart, but adjusted for inflation and stated in 2000 dollars (thus real prices). Here you can see the absolute drop in median during the real-price decline years. 81-82 are barely visible. The 90s drop fell from about $380K to $300K (in 2000 dollars).

**source, HSBC, Jan 10, 2006.

(you may need to click on the graphic to enlarge it in your browser)

Yeah, what people who post here don't remember is how absolutely hellish the late 80's were in the LA economy. Unemployment was something like 15%, the aerospace industry was pretty much leaving the area entirely and even so, home prices only went down about 25% over three years.

Even with all the easy money that has been floating around, I don't see it going down that much again, barring a major recession. The economy is not exactly doing great, but we are hardly in any kind of recession.

Jimbo,

Just wait for the HELOC money and RE related jobs dry up. This economy may look better than the one in 1990, but I think the fundamentals are pretty bad. Furthermore, a lot of houses are held by mortgage brokers and realtors, so I definitely see those houses coming on the market whatever the price.

I can demonstrate that decrease of pirates cause increases in global warming. They disrupt shipping and kill people. Disrupting shipping causes a drop in shipping and lower consumption of shipping fuel. It also depresses export economies, causing them to use less fossil fuel.

We also know that people are a likely source of greenhouse gases, which lead to global warming (ref: Al Gore's Futurama clip). If they are killed, that reduces the source.

aeroplanes cause global dimming....

peak oil is still a problem: bakhtiari says it occurred last year....

Oil production limit reached: expert. 10/07/2006. ABC News Online

An international oil industry expert says the limit of global oil production has been reached.

Academic and former National Iranian Oil Company executive Dr Ali Samsam Bakhtiari has told the Financial Services Institute in Sydney the world's oil fields are producing as much oil as they can.

He says giant fields in Saudi Arabia and Kuwait are struggling to meet production targets.

Dr Bakhtiari says the massive output declines in the North Sea oil fields and Mexican oil fields will have a major economic impact.

Dr Bakhtiari says for the first time in 150 years, the world is entering an era in which it cannot have all the oil it wants.

He says there are five years left to plan priorities for the use of crude oil.

astrid,

Now there's something that doesn't get near the "air time" it deserves! In my arena I suppose we would consider these "investment properties" the equivelant of "insider holdings". I can't think of ONE mort. brkr. or realtwhore I've met in the last 5 years that DIDN'T have their own deal/deals in the works. When you think about it if one could pocket a 100, 200, 500K+ that's a lot of commissions/fees that they don't have to generate by sweat of brow! My wife had heard (through the bamboo mafia) that a Filipina realtor in LV got over extended with flipper properties and now has to decide wether she wants to keep up payments on her primary residence and let her inv. prop. go or take her chances at the craps table? Pretty predictable huh?

david cee,

We recently returned from a trip to LV and I dare say the scenario you describe above is the least of their worries. I'd seen a billboard right on Tropicana Ave. offering brand new const. condos (2/2) for "the mid 100's. It's going to be difficult for this investor to do anything when builders are offering all kinds of incentives a private inv. can't come close to competing with. You're right though, this guy is past his denial stage and likely generating considerable "anger". I'd seen several eye catching bold print ads that offer "Close before August 15th and Get a FREE POOL! Mind you this was part of a builder's unsold, never lived in inventory!

yeah, it's all just a big, huge mess... we should never have come down from the trees...

">BTW, Downtown Palo Alto and Mountain View are really thriving. That may cushion the soft landing for certain types of properties.

Seriously… i haven’t seen any RE distress in these two places. Darn. "

I have been monitoring Mountain View and Los Altos house prices, and there have been some price reductions of 50,000 -100,000 some even a bit more - some of the houses are listed as new listings so you don't see the price reductions (800,000 - 1.5m house price range) - but I have the previous listings to compare the new ones. It's only a few cases at the minute and some houses are still selling, but the market has changed here! Houses that are not quite situated right are not doing so well now.

I cant' afford them yet, but I enjoy keeping a tab on them all, so I know what I want when the time is right. :-) Meanwhile I rent a house for 2400, that would cost $8000 per month to buy interest only (rough estimate) and then there's all the home improvements it needs...

Claire

DinOR Says:

Surfer X/Michael Holliday,

Uh I hate to break it to you guys but it’s not just the “Cali” of our youth that the boomers have “re-invented” and custom tailored for their second childhood. It the whole freakin country.

_____

Yes!

The three days of peace, love, and excrement hurled in prodigious quantities, that they called "Woodstock," has spread out like a giant socio-political-economic stain over this great land of ours, 3-4 decades later.

Too bad we weren't of age in Cali during the 70s. By default, if we were able to roll out of bed and make it to work, even if still half drunk and stoned (like many did), we'd now be sitting at the top of the friggen' real estate heap, fat and happy as a clam in a bowl of New England-style clam chow chow.

Conor,

I don't disagree with your reasoning. The only contention I have in your assumptions is the notion that CA is the most expensive cost of operations state. It is about in the middle. I think we ranked 24th most expensive last I looked. Of course, this depends upon industry and varies quite a bit.

Certainly the disparity between "haves" and "have nots" won't be remedied by a housing correction. This is one of the things I get annoyed about from various bear camps. It's one thing to be a rational skeptic, it's another thing to be hoping that some coming calamity will punish the wicked and reward the righteous. That pretty much never happens in economic history. When things restructure the outcomes aren't usually very rational or righteous...they just are different with a bias towards the wealthy protecting themselves while everyone else fights it out.

I do think inflation will go a long way towards correcting the affordability imbalance; but not all the way. Real prices of homes have to drop too. By how much I can't guess. But I insist that there must be wage inflation if there is cost inflation, just lagged. Simply applying cost inflation to the rental market, which is more liquid than the housing market, will put incredible pressure on wages. In fact, wages are already rising very strongly, as last week's data showed.

And just for clarification, I am not a Bull or a Bear, although I usually get called both by extremists on either side. My definition of Bull is "the last guy to realize the party's over". My definition of Bear is "the last guy to capitulate at the top; the greatest fool".

Conor,

Rich Toscano (all around great guy and SoCal Bubble Authority) confirms your take at Prof. Piggington's! He de-bunks more myth than you can shake a stick at. I think the article is "Why is it so expensive to live in Southern California"? He further substantiates *astrid's* position that in a number of cases flipper properties are owned by realtors and mortgage brokers among others that rely on RE as their primary source of income.

Randy H,

My definition of a bear couldn't be more different. Bears typically believe that EVERYTHING is over rated, over bought and overvalued. Sour grapes are always within an arms reach and they would rather take a 6% return when even widows are making 12%!

Bears don't create anything, employ people or innovate new products. They critique what others have done (wether or not they have been asked to do so). I don't really mind either camp, it doesn't bother me either way but what we have been surrounded by for the last 5+ years has been "hogs".