The Rude Awakening
Wall Street, New York
Friday, May 26, 2006

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• The turning of the tides – what does a stronger hand
  for the buyers mean for the value of your home?
• Eric Fry is homeless – congratulations mate, it's
  about time!
• Finally, your market data resurfaces, the great money
  migration and still, still more...

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Eric Fry, reporting from the precipice of the housing
market...

At 11:15 yesterday, your editor became homeless. He closed
the sale of his residence in Westchester County, New York.
Now, finally, he may resume breathing normally...and
sleeping peacefully...and writing about the dismal U.S.
housing market.

Trading real estate for dollar bills may or may not prove
to have been a prudent transaction. But it sure feels good
for the moment. To celebrate this delightful "re-
capitalization" of your editor's personal balance sheet, he
strolled into the nearby wine shop to buy a bottle of
Roederer Cristal, then stopped by McDonald's to grab a Big
Mac.

The champagne was nice...but the Big Mac was awesome.
There's just nothing quite like the taste of a Big Mac
after selling a depreciating asset.

The nice, young family that acquired your editor's home,
obtained a beautiful residence at a reasonable price. They
are thrilled. But so is the seller. He unloaded an asset
that was beginning to feel more like a debtor's prison than
his personal castle. For six years he loved residing in
this home that he had designed and built for his family.
But during the final year of his residency, he loved it
somewhat less than before...primarily because he had been
planning a move back to California, the land of his youth.
Home-ownership on the East Coast, therefore, impeded his
path to the West Coast. Hence his heightened sense of
anxiety and urgency as the "Housing Bubble" headlines began
to accumulate atop the nation's newspapers.

But the house is now sold and the path is now clear.

Your editor remains worried about the housing market...very
worried. But his worry is now purely theoretical...As such,
he may offer the dispassionate observations of a non-
participant.

To anticipate the objection: "But you must live SOMEWHERE.
So where will you buy next?"

We would provide a ready answer: "Yes, we must live
somewhere, but we need not buy."

When your New York editor returns to California as the re-
christened "your Los Angeles editor," he will return as a
home-renter, not a home-buyer...at least for now. Once
ensconced in Los Angeles – actually Laguna Beach – he will
offer periodic anecdotes and observations from the belly of
the national housing-bubble beast. The California real
estate market features a toxic brew of excesses: sky-high
prices, record-low affordability and extremely aggressive
lending practices. As such, it will likely lead the next
national bear market in housing...if there is to be one.

As faithful Rude Awakening readers may have noticed, your
favorite daily e-letter has not mentioned a single word
about the housing market for months. We decided to take
leave of the topic, pending the sale of a certain residence
in Westchester, New York. But now that the sale has closed,
we will return to the topic like a salmon to its spawning
ground...with abandon.

--- Special Investment Alert ---

THE GREATEST MONEY MIGRATION IN 63 YEARS
IS ABOUT TO MAKE A FEW INVESTORS VERY RICH

An historic event is taking place in the financial markets
right now. As of last month alone, $7.9 Billion "migrated"
to one investment class. This is bigger than the "Great
American Industrial" run up, the tech boom and the Internet
combined...

Click below for a free report which explains just how and
why this may be the biggest money-making opportunity you'll
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http://www.isecureonline.com/Reports/MMT/EMMTG501/
 
-------------------------
 
Homeless
By Eric J. Fry

Ben Bernanke and Alan Greenspan both agree that the housing
boom is over and that it will begin an "orderly" decline.
We agree that the housing boom is over and that home prices
will begin to decline, but we aren't so sure about the
"orderly" part.

"It seems pretty clear now that the U.S. housing market is
cooling," Fed Chairman Ben Bernanke recently remarked.
"[But] our assessment at this point ... is that this looks
to be a very orderly and moderate kind of cooling."
Later the same day, the former Fed chief, Alan Greenspan,
observed, "This has been quite an extraordinary (housing)
boom. The boom is over. I think we can safely say that with
a strong degree of confidence."

However, the famously inoffensive Greenspan continued,
"[there is] no evidence that home prices will collapse."
Conveniently omitted was the phrase, "...but there is
plenty of evidence that that home prices COULD drop
significantly."

Many homeowners will find comfort in these assurances from
the present and former Fed Chairmen. We do not. Greenspan's
impressive resume does not include any awards for market-
timing. After warning against the "irrational exuberance"
that launched the young bull market of the 1990s, Greenspan
became a credulous acolyte of the Nasdaq's bubble-era
valuations. Indeed, he extolled this enormous asset bubble
as the fruit of a "productivity revolution."

And although the Nasdaq bubble and its economy-altering
effects danced directly in front of Greenspan's spectacles,
he claimed never to have seen them. "As events evolved,"
the Fed Chairmen lamely explained, "we recognized that,
despite our suspicions, it was very difficult to
definitively identify a bubble until after the fact - that
is, when its bursting confirmed its existence."

We are inclined to take the man at his word. If he failed
to recognize the largest asset bubble in history – present
company excluded – why should we expect him to recognize
any other bubble? In other words, naïve assurances from
Federal Reserve chairmen inspire more alarm than comfort.

Home price might indeed dip serenely, like the oars on a
lovers' rowboat...just like Ben Bernanke expects. On the
other hand, home prices might become as disorderly as
stampeding soccer Hooligans...just like your New York
editor expects. No one can say for certain. But your
editor's recent personal experience provides one unnerving
data point...and suggests that the "less orderly" portion
of the housing cycle might be fast-approaching.

Throughout the seven months that prospective buyers
streamed through your editor's home, it became increasingly
clear that the prospective buyers were becoming
increasingly price-sensitive...and picky...and arrogant.
Before our very eyes, literally, we watched the balance of
power in the housing market shift from seller to buyer. To
wit: the first individual to bid for our home, offered only
80% of the asking price...and not a penny more. Your
editor, who was feeling more fear than greed, did not
dismiss the offer out of hand. But after weeks of
attempting to reason with this unreasonable party, he
dismissed the offer. Fortunately, a second offer
arrived...at 90% of the asking price. To which your editor
replied, "Sold!"

A home is a wonderful thing to own; but it is also a
wonderful thing to sell...especially when prices are
slumping and buyers are disappearing...and time is of the
essence.

We would not dare to suggest that seller of your editor's
home got a better deal than the buyer; we would only point
out that the seller endured many sleepless night before
closing the deal. Much of the anxiety stemmed from the fact
that your editor had spent two years planning and arranging
a move to California – a move that involved children and
work and pets and an ex-wife. A non-sale, therefore, was a
non-option.

The buyer, however, was pursuing an entirely different
agenda: To buy a nice family-friendly home for the long-
term. In other words, the buyer's primary objective had
little to do with market-timing or price-sensitivity. The
seller's objective had everything to do with market-timing
and price-sensitivity.

"Hey, now that I've sold my house," your editor queried a
local real estate agent yesterday, "I've gotta ask; what's
really happening in the housing market here?"

"It's not good...It's really not good," came the reply.

"How does it compare to last year?"

"There is no comparison," said the agent. "Last year we had
a typical springtime market. This year we had nothing."

"So what type of homes are selling?"

"Not much...A few entry-level homes are selling. But
nothing over $1 million. If I were you, I'd rent for a
while when you're out in California. This housing market's
gonna get worse all over the place. So I'd just wait it
out."

Hmmm...Sounds like a plan.

[Joel's Note: If there were a chance, even a slim chance
that your greatest asset was at risk, wouldn't you want to
know how you could take the necessary steps to protect it?
It is possible that the housing market may gracefully
reenter the atmosphere. It is also possible that it could
crash through it, burning up in the process and falling to
earth in a fiery heap. Consider the following report your
vaccination against a potential housing market collapse.
Read it here:

The Hidden Drop in Home Prices
http://www.agora-inc.com/reports/DRI/EDRIFB05

--- Special ---

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[Joel Note: We doubt we're the only folks who have noticed
a few cracks forming along the base of America's massive
housing boom. We bet a large number of Rude readers have
noticed the very same thing...or maybe not. Maybe you
reside in a region where home prices continue to ascend
heavenward. Whatever the case, we love to hear from you.
Share with us any anecdote that you believe represents the
condition of your local housing market – whether that
condition be vibrant or comatose. Send any emails to your
Rocky Mountain-traversing editor at

aussiejoel@the-rude-awakening.com

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And the Markets...