Sunday, April 23, 2006

More Evidence Every Day That Bubble Has Popped

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More alarm bells were rung this weekend, this time in a column by Bill Fleckenstein, which appeared on

For those unfamiliar with Fleckenstein, he is the president of a hedge-fund management company, Fleckenstein Capital, and writes a column on his own website, which requires a paid subscription to view.

In the msn column, headlined "The housing bubble has popped," Fleckenstein sets about yet another game of connect the dots in coming to the same conclusion most every visitor to this blog has already reached. It is best summed up in the subhead for the piece, which states: "Property owners should worry; so should their lenders."

Here's an excerpt:
A recent story in the Wall Street Journal, "Hot Homes Get Cold" (subscription required) offered lots of its useful vignettes that serve as a microcosm of manic markets -- starting with the bravado-cum-denial displayed by a medical-equipment salesman in Stuart, Fla.

Concerned about his real-estate investment apparently going sour, he can't afford to reduce the price to what homes now sell for in his neighborhood -- which is about $100,000 less than he's asking. Says the salesman: "If I got in a jam, I would have to drop the price, but I am not at that point." His game plan: Rent the house, so as not to "lose my shirt."

That's the mentality often seen in manic markets -- the belief that you can't possibly lose, and, when the price goes against you, you don't have to deal with it, because it will come back. This fellow (and millions more like him) is going to find out that his belief is a mistaken one, in the same way that folks did when the stock bubble burst.

The story went on to note that many formerly hot markets in California, Arizona, Washington, D.C., and Florida are now "languishing without buyers or even prospects. Many once-booming markets are seeing double-digit declines in sales." The magnitude of the drop in Florida home prices (once the frothiest market in the country) is striking. Single-family home sales declined 20% in February, year-over-year. Similarly, California sales dropped 15%. Some of the hottest towns in those states were off twice as much.

-- The Boy in the Big Housing Bubble/Los Angeles and Beyond