SF Peninsula Real Estate Guru

Gary Watts made the following comments about the media which just loves to bash the real estate market any time it gets a chance - and most of the time it just makes the chances up.

The Media

Remember Y2K, Mad Cow Disease, West Nile Virus, Killer Bees, SARS, Bird Flu and now Housing?
Today’s media plays up bad economic news more than ever, which leads to misconceptions about economic realty. Our economy is extremely strong, with a 2nd Qtr. growth rate of 4%; corporate profits are superb; and personal income is growing more rapidly than spending - thus pushing up the personal savings rate!  All the while, the world economy is exploding.  However . . .

 The media says real estate is going down, yet July’s prices for single-family homes in California were up 3.2% from last year. From August of last year, the Bay Area’s median home prices rose 4%.
The media reports that foreclosures have now exceed the 1996 peak in the Bay Area, but they fail to mention that more than 495,000 homes and condos have been built in the Bay Area since then!
The media reported 53,942 notices of default for the 2nd Qtr - a near record high. They compare this figure to the 1st Qtr. of ’96, when 61,541 notices were filed -  but fail to mention that 2 million more homes have been built in California since then! (The lowest number was 12,417 - 3rd Qtr. of 2004.)
The media and the financial markets have greatly over-reacted. There are only $70 billion of loans with late payments, yet the financial markets have lost over $1 trillion in value! 

In on of my earlier posts, I lamented the over-reaction to the sub-prime crisis.

$70 Billion of loans are late on payments - it doesn’t mean anyone lost $70 Billion !

Say the lenders only recover 80% of all loans which are now late in payments, the lenders will have lost 20% of $70 Billion or $14 Billion. A lot of money no doubt - but I wonder how many Billions the lenders made in the past few years on sub-prime mortgages - I bet it well exceeds $14 Billion.

 And if my math is right, the loss in the financial markets of $1 Trillion ($1,000,000,000,000) over the potential loss to sub-prime lenders of $14 Billion ($14,000,000,000) is SEVENTY ONE times the potential loss to the lenders.

That is absurd !

Over and out until next time.