Reader RJ from CT pointed out this post by Chris, and he wondered the same:


How can there be a real estate revival when the State of California has $875 Billion in debt and facing a $16 Billion budget deficit? 

The California legislature has been so dysfunctional for so long that they are ignored.  They don’t show any competence in solving the problems, and if they did, it wouldn’t involve much-higher taxes.  If there were massive cutbacks in government services, we’d survive.

There are still a slew of reasons not to buy (Afghanistan, Iran, Europe meltdown, American economy, artificial rates, etc.), so for those who want to use those to justify staying on the sidelines, feel free.  There will always be negativity, that is how this country rolls now.

Is it a genuine market recovery?

It is genuine, in the sense that it isn’t fueled by exotic financing.  Buyers have to qualify for their mortgage, and most are investing large down payments.

Is it a recovery, meaning “being restored to a previous condition”?

Yes – it is back to how it used to be, a frenzy around the best buys.


The local market has enjoyed relatively-healthy demand over the last three years, so the action has been on-going.  But in January it stepped up a notch or two, with buyers flooding the streets, looking to take advantage of the sub-4% rates.

Once you get into the fight and see bidding wars on every good buy, it draws you in.  The excitement helps buyers forget about those concerns off in the distance.

It may appear to be fools rushing in, but they are people who are comfortable financially, and who are tired of waiting, and want to get on with their life – which for many has been on hold for 5-10 years.

The buyers must be financially sound.  The reasons not-to-buy are so obvious, that they must be aware, yet they are proceeding anyway.

For the masses to believe in a market recovery, two things need to happen.

1. The shadow-inventory question needs to be resolved.  The day that someone steps up to the microphone and convinces people that REOs sell for retail just like every other house, and that pushing more foreclosures through the pipeline is a good thing, then we’ll know we are getting closer to a real recovery.

It may not be that far off – see this article, although this guy didn’t quite get it :


“We think that differences in foreclosure procedures will continue to affect state-level house price trends, with nonjudicial states outperforming,” said Diggle. “After all, as foreclosure pipelines are brought down to healthier levels in nonjudicial, high burn-through states, supply conditions can more rapidly tighten to the point that they support price growth.”

Once we get that stigma turned around, then hopefully the banks and servicers will start pressuring defaulters to pay or quit.

2. Mortgage rates need to creep up to take some of the frenzy out of the equation.

If the good-paying Americans stopped seeing deadbeats being rewarded, they would be much more likely to participate in a recovery.  But that would be taking us back to a day long ago, and I’m not sure if that is possible any more.


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