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Market Imbalance

|Includes: iShares U.S. Real Estate ETF (IYR), JPM, KBE, SPY, XLF

  

Impossible SeeSaw 
Originally uploaded by 
R_Thull


To keep abreast of local sales trends, I activley monitor MLS inventory in the territory that includes: Solana Beach, Cardiff, and Encinitas.

This year 78% of sales in this territory closed below $1 million... while the current asking price for 63% of homes that are actively listed for sale are above $1 million.

I thought this was interesting, so I checked the stats for the entire San Diego MLS, and... 80% of sales closed below $500k... while the asking price of 58% of homes actively listed for sale are above $500k.

On 12/12/2008 I went on record in an article published on Seeking Alpha, called "Market Prices: The Great Chasm" calling for a significant "Prime market" correction. Here is an excerpt.

“Prime” homes will also decline in value. My call is 35%-40% off peak prices. Only this time, the real drivers of economic stimulus, the small business class, will cut back spending for real. And lay people off. And cash out investments. And sell assets below value. 

Major banks who have just received unprecedented amounts of cash infusions to plug up cartoon-like, bullet-ridden lending ratios will have to address the fact that depreciation of portfolios to date only reflects subprime default-related losses. 

Maybe I should have entitled this article, “Market Prices: Which Chasm is Greatest?"

It was the adjusting of prime loans from "interest/only" to "principal and interest" that I predicted would stress the system. These loans are starting to adjust now. Houston, stand by.