First, I want to wish everyone a very happy New Year and hope that 2007 is a prosperous year for you and your family in terms of health and success. I apologize for not posting but I have been busy and just got back from a multi-state trip that again highlights the insanity that is currently happening in housing. As every housing blogger is licking their chops as if a savory Kobe steak is being slowly cooked, we await 2007 with great anticipation. Why is 2007 such an important year? Well there are three main reasons:

1. The large number of adjustable mortgages and sub-prime mortgages resetting.

2. The slowdown in appreciation from zero to negative numbers. Some areas approaching the dreaded “double-digit” zone.

3. The massive supply of new buildings and relisted properties this spring and summer (projected). How is this projected? Well simple if you think about it. If sales massively decreased in 2006 (www.dqnews.com) and many took their houses off the market in the fall and winter, guess when many will begin re-listing their homes? As of now it is too soon to tell but we will follow the inventory numbers closely. Late February will be a good gauge of how steep market inventory will rise.

So why am I comparing housing to the new Rocky Balboa? For those of you who haven’t seen the movie, it is about Rocky (duh) and his ability to step back into the ring even though many have written him off due to age. Of course Rocky per his usual style has enough gas to give it another go. Do not underestimate the housing market; it has been punched in the face and it is still standing. But 2007 for reasons 1,2, and 3 above will be the gut shot that will test the resolve of the market. Any realistic person with a Paris Hilton sense of finance can do the basic math; housing is astronomically overpriced…and it’s Hot! Yet those of us that feel housing will fall 10 to 15 percent this year are touted as extremist and bubbleheads. You doubt this? We’ve been nominated for the first ever Real Estate Blogging Awards by Housing Wire at REBA Awards. You can vote if you like by following the link. And guess what category this blog falls under? We’ve been labeled “Most Extreme” yet everything I write about is common sense and based on financial canons that date beyond our era. Somehow I feel those reading this blog think that we are that designated driver trying to take away the keys from our overly zealous drunken friend; who believes he can drive even though he is wearing his sister’s thong on his head and chanting Enya songs at the top of his American Idol reject voice.

But again, do not dismiss housing. I think we will see a very interesting year. 2006 if anything was a slow ride to the top. Inventory increased, sales fell, and appreciation stagnated as a Matador sticks a bull with another sword. Those of us in the bear camp realize that this cannot go on into perpetuity. As I previously mentioned, I took a trip to Arizona and New Mexico. The sprawling new subdivisions are something to see. As you enter the city of Goodyear Arizona you suddenly realize what desert living is all about. Massive 3/2 homes pop out like credit cards during the Christmas season at your local mall. But you begin to realize that homes need a basis of support and this translates to jobs in the nearby economy. As I browsed through the local newspapers, the jobs listed did not compute to the price of housing – doesn’t really matter since a large portion of homes in Arizona were purchased by investors; just look at Casa Grande or communities that completely depend on California State Equity Giants (CSEG™). You need only look at the Mortgage Bankers Association stats to find out where billions of vanilla equity extract went.

As I spent sometime in New Mexico, in particular Las Cruces and Albuquerque, and you realize as a gradient fades in color so does the equity runoff. As a halo effect, the equity ran far into the heart of New Mexico. Again, not to the extent of overbuilt Arizona but the same builders, Toll, Centex, and DR Horton you see the same names in the game.

Tying this altogether like a well wrapped Christmas gift that I’m sure all you naughty boys and girls received, we realize that the market is at a crucial turning point. You either set a new paradigm of outrageously priced homes in coastal regions financed by new exotic financing vehicles or you trend back down to past figures. We all know that certain areas will always have a premium but the massive number of suburbs that benefited from the boom such as Compton, Inglewood, Lynwood, South Gate, Huntington Park, and others that you can map on Google, you will realize that we are at an extraordinary time in history. We will see if housing like Rocky gives it another go in 2007 and puts up a valiant fight or like Tyson squanders 200 million in cheap booze and women and hangs up his boxing gloves.

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