A front page story on the Sunday L.A. Times talked about a few areas where real estate still remains persistent and commands high prices regardless of the overall market climate. These areas, mostly in the East Bay in Northern California are still bringing bids over asking price. My response? Who cares!!! The overall real estate market is trending down and trending down fast. What happened to year-on-year double-digit appreciation this year? We are on track for zero percent appreciation this year and definitely negative territory in 2007; the only question that remains is how low will we go? But the next few months will be absolutely and fabulously boring. Here’s why…

If you track inventory numbers, take a look at the MLS data or Ziprealty inventory numbers. Reduced price listings are growing and hovering around 35 to 45 percent depending on which county you are looking at. These sellers we will call:

Desperados – def.- Selling because they have absolute no choice.

Then we have a large contingency of sellers that have let listings expire or have withdrawn their home from the market. We will call these sellers:

Baghdad Bobs of Housing – def.- They feel they can relist in spring/summer 2007 and get their asking price. Why you may ask? Because this is housing playa! Housing always goes up.

So until we reach spring of 2007, the market will continue on its molasses downward trend and inventory will continue to build up on the backend only to be unleashed in Q1 and Q2 of 2007. These Bagdad Bobs of Housing (BBHs) will be coming to a gunfight with water pistols. Think of these factors that we KNOW will happen:

1. Major number of adjustable mortgages will reset. To the tune of $1 trillion dollars in 2007.
2. Housing appreciation stalled to negative. By definition of reason #1, we know many will be unable to refinance due to prepayment penalties and low or negative equity.
3. Massive inventory increases. See Baghdad Bob’s of Housing for more info above.
4. Economy already laying off many in construction and industries associated with real estate.
5. War in Iraq draining our funds and the dollar at all time lows against the Euro and other currencies. Strikes at argument that Fed will lower rates to keep housing stable. Do you think housing is the most important issue in the U.S.?

You think the Fed can lower rates and inflate this bubble again? Doubt it. If anything, the Fed will need to adjust rates upward to compete for capital on the global markets. They will sacrifice housing for a stable dollar; it just has to be that way.

So for the next few months the housing market will be rather dull to watch. The party will begin in spring of 2007 and after that it is anyone’s guess what will happen. But we can easily predict that prices will not go up and that is almost the only thing we can say isn’t boring.

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