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The Albertans are coming! The Albertans are coming!

I keep an eye on what is going on in the US, particularly in California, where I first started noticing bubble blogs sprouting on the internet a few years ago. After a few years of watching debates rage back and forth over whether an inevitable day of reckoning would arrive for over-priced US real estate, it looks like the debate is finally over.

Nobody knows for sure where it will all end, but a lot of the hopes and dreams that seemed substantial back in 2004-2005 in California and other parts of the US have turned to so much desert dust, blown away by the realignment of economic forces, away from a bubble-tastic frothiness that was so aptly blamed on "irrational exuberance".

Now we see, in California and other US states, that properties formerly valued on paper hundreds of thousands of dollars higher, are finding their real worth is not what it was puffed up to be.

Here are a couple recent examples, one from the poster boy for mortgage fraud and escaped consequences, Casey Serin. Or as he was recently dubbed, perhaps unfairly, the most hated blogger on the internet.

It turns out that Casey bought this house for around $330,000, as he went on a Western US real estate buying spree, right at the top of the US bubble in 2005-2006. By the time a foreclosure auction rolled around in February 2007, nobody wanted it. In the end, the banks lost more than $130,000 when the property finally sold.

Not to mention, in the neighbourhood where this house just sold, property values have now declined over 30%, if one extrapolates from the earlier purchase to the recent sale, and considers it an accurate bellwether of the current market, not an anomaly.

The market in some areas of California is so overbuilt, it is possible some homes will never be occupied. Check out the fate of this house in a Sacramento suburb. It was recently offered at a steep discount from the price houses in the development originally sold for - and it still didn't sell.

Previous sale price in July 2005? $526,000.

Price it was offered at a foreclosure auction when it didn't sell in spring 2007? $295,000.

How do the original buyers feel about their "investments" when something like this happens? They can't be satisfied with the actions of builders, who attempt to sell their inventory any way they can, even for hundreds of thousands of dollars less than the prices paid by earlier purchasers. Early buyers can't be pleased that their insolvent neighbours can't afford the house next door, that pumped up everyone's home values, and now takes them back down again.

This stuff is happening in California right now! Why exactly is Victoria different from California, aside from timing? So different that prices can't ever come down when overbuilding saturates the local market? So different that a flood of rich foreigners (Hong Kong Chinese, Americans, Albertans) can't stop coming here, ever, or ever stop driving prices higher?

Which begs the question, who can replace a rich Albertan, when he eventually stops moving to Victoria?

Meanwhile, in Florida, condo owners can't wait to escape from their contracts in an overbuilt real estate ground zero, as this article from the NY Times explains.

*update to this story - well, Casey Serin has shut down his blog, as you can read about here. So the links aren't working to support the story about Casey's foreclosed house, but it's all true! ...

Further update - like the Cat, Casey came back, and the links above are working again...

^{[editor's note - none of the Casey links are working anymore - sorry - August 31, 2007]}