Monday, November 26, 2007


Some of Kenny Kellogg's faithful readers have been asking for more perspective on the decline in the housing market. I've been a little gun shy on this because I don't want to be seen as jumping on the downturn bandwagon and it's a sensitive topic because a lot of my friends have bought pads in the last couple years.

Well, the good news is that all my friends have bought in places that figure to retain value - like San Francisco, Downtown Chicago, immediate East Bay suburbs of SF (not to be confused with outer suburbs), Santa Monica, etc.

The bad news is that a housing decline affects us in unpredictable ways. Check out the article below from Paul Kedrosky's blog. California is facing a monster deficit this year. Imagine cutting the state budget by 10% - that is going to be hard and very ugly. Last time we were in this position, we floated a bond that may have been technically illegal because California is not really allowed to go into a deficit. Crafty lawyers found a way around the problem last time, but can we really do that again? 10% is a lot of healthcare, school and transportation programs that are just going to disappear.

I'll leave you with an image from Kedrosky's Blog. This shows that we're still working our way through the sub-prime and adjustable rate mortgage problem. We've got a long way to go.

California State Revenues: Into the Housing Abyss

While I had been expecting that California would see a state revenue shortfall in 2008 of around $8-billion (up ten-fold from this year), Governor Schwarzenegger announced today that the situation will be even even more dire. Fueled largely by housing's collapse, the California state budget is now forecast to have a $10-billion shortfall in the coming fiscal year.

Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market.