Housing Giants - August 11, 2008 - (Page 17) California, resale inventory tops 2 years of supply! It will take time — and lower prices — to clear this massive amount of inventory, but trends in recent months suggest that the path to recovery is beginning. Rising foreclosures and REO sales is contributing to the rebound in activity while it is simultaneously driving prices down significantly. In several instances (some of the Central California metro areas, for example), these foreclosure or REO sales comprise more than half of the sales in the market in recent months. society will find new ways to make money and the recession will not be steep. debt levels Our country is also up to its eyeballs in debt. Future earnings need to be used to repay debt, which will slow reinvestment and growth as we come out of this. conclusion The road to recovery is beginning. You still need to deal with the legacy problems of existing communities and the debt associated with them, but the fundamentals show that they are not getting any worse. Once demand and supply return to a balanced level, we expect debt and equity to return to the market and land activity to pick up. Before you buy any land, ask yourself this question: “Does this submarket need this community at this price range?” Once the answer is yes, you will know that the market has recovered. HG Risk FactoRs The three biggest risk factors to recovery are: Mortgage costs and availability Inflation is putting upward pressure on interest rates, and the tremendous risk that Fannie, Freddie and FHA continue to incur could be curtailed. Although the government wants to encourage these groups to keep lending, what shareholder wants them to make high LTV mortgages in a falling price environment? the econoMy While plenty of horrible things are occurring in the economy, and the consumer is up to his eyeballs in debt, I believe that our entrepreneurial John Burns helps many of the largest companies in the industry with strategy and monitoring market conditions. He can be reached at jburns@realestateconsulting.com. www.Housinggiants.com 8.11.08.Housing giants 17 http://www.housinggiants.com
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