BUSINESS JOURNAL EVENT

2008 Health Care Conference: Frontiers of Health Care

Wednesday, November 12, 2008, 8:00 a.m. - 11:30 a.m., Hyatt Vineyard Creek Hotel & Spa, Santa Rosa

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Failure to price risk got us the housing crunch; where’s the end?

It’s fair to say no one knows when the residential real estate market will turn.

Writing last week in the Wall Street Journal, former Federal Reserve Chairman Alan Greenspan said “the current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated.”

Mr. Greenspan said the sub-prime mortgage market was just one of many asset classes where risk had become priced too low.

Whether is was easy mortgages or commercial paper, investors had become mesmerized by the fiction that values would keep rising because they kept rising – until they didn’t.

It was the mortgage securities market that got hit first, he said, but it could have been any one of several other asset classes that set off a global credit crisis that began in August. In fact, the rapid rise in real estate values was a worldwide phenomenon, with the U.S. gains only about average, Mr. Greenspan noted.

But back to the main question: When will the residential real estate market turn? When will fear be replaced with the recognition that this could be the best buyers’ market in the North Bay in 30 years or longer?

In today’s BUSINESS JOURNAL there is a clue.

At an east Santa Rosa subdivision hailed as a model of infill development, an experienced investor has purchased 33 of the 56 homes. The plan is to rent them for the moment, which makes perfect sense at a time when rents are rising and vacancies falling.

But the Streamside homes could someday come up for sale once again.

What this investor knows is that over the long term, the for-sale market will stabilize and the scarcity of building will once again put upward pressure on prices.

No one can pick that precise moment. It can’t be done with exactness in the stock market, and it can’t be done with housing.

But that moment will come – maybe it already has.