Tsunami or Squirt Gun?

Lately I've been noticing debate is heating up over the so-called "foreclosure tsunami" that the more bearish among us are convinced is imminent.

The debate primarily surrounds whether or not a "shadow inventory" even exists, and if it does, whether it will see the light of day in the form of a flood, causing an explosion in supply and a crash in prices, or a trickle, resulting in a slow, painful, indelibly frustrating return to fundamental valuations.

I used to believe it would be a flood, but given the shenanigans of the large banks and a government and regulators complicit in allowing them to delay the foreclosure process for a year or longer (as well as delay a realization of losses), it seems abundantly clear that this supposed bottleneck of distressed inventory is unlikely to suddenly bum rush the market and cause an utter collapse in prices.

Sorry, uber bears. I just no longer think it's going to happen.

Even with the massive amounts of foreclosures in the past year, according to Redfin Long Beach inventory is down 33% YOY.

THIRTY THREE PERCENT!
Hell, 4% of that decline in inventory was just in the last 30 days! And in the middle of the Super Summer Selling Season, when more people should be trying to sell!

I know some of us sit here in slack-jawed amazement as dumpy houses and cramped apartments sell for WTF prices but you also have to understand that many people have been priced out of the market for YEARS. Pent-up demand absolutely exists--there's no doubt. Hell, I'm part of the pent-up demand! And if you're reading this right now, odds are you're part of it too.

See what I mean?

But the extremely bearish are betting that PUD in Southern California will wane, for that supply of gainfully employed, cash-flush buyers to "run out." After all, with unemployment in the double digits with no signs of improvement just how many people with 20% saved and stable incomes can possibly be left?!

Well, a lot apparently. A lot more than I previously thought.

And to make things worse, this contingent of eager buyers is fighting over an ever-shrinking pool of inventory, thus the bidding wars and the price declines dragging on for ages. This is the intent of the banks and the government, and it appears that is the way it will remain.

I certainly don't have the answers and anyone who claims to (especially those who earn a commission to) is full of brown. You hear me? FULL OF BROWN.

But all of the data I'm looking at indicates So Cal house prices won't be on the way up for a long, long time. On the other hand, it's increasingly unclear how much lower prices will go and how quickly. So what now? Just sit here in limbo?

Look, just as I think the constant bottom calling is absurd, I think it's foolish to wait for skyrocketing interest rates, 40% unemployment, or a fire hose of inventory to suddenly be turned on. The only one who can determine if "now is a great time to buy" is you, using rational, time-tested calculations. If you're paying close to what you would it would cost to rent the same place, if your debt-to-income ratio is within traditional bank-determined parameters*, you plan on being there for a long time, and you love it...well, shit, are you waiting for a sign from the heavens? Do it!

But if not, then don't worry about it. The irrational (and wholly misguided, according to the evience) fear of being "priced out of the market...again" is gripping the market. Don't succumb to it. If the numbers don't work, keep saving, stay sharp, listen to both sides of the issues, and most importantly...good luck.

*Front End Debt-to-Income: gross annual salary X .28 / 12 months = maximum monthly payment (yes, including HOA).