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  • Writer's pictureJeff Matthews

What Happens in Vegas Eventually Gets Around

I really don’t know. I think really more than anything out there, it’s just most, there’s several Markets in California which are still good but the northern part of California up in the Sacramento area and the San Diego area is just that we’re struggling to find qualified buyers given the mortgage instruments that are available in the marketplace. —Don Tomnitz, CEO D. R. Horton

Practitioners of the “What happens in Vegas stays in Vegas” school of economics, which holds that, like a husband’s infidelity in Sin City, the subprime market fall-out will not spread beyond a limited and insignificant portion of the economy, ought to listen to a few conference calls to test their happy theory.

If they did, they would have heard the always-straightforward home-building Mr. Tomnitz, quoted above, discuss in detail precisely how the subprime liquidity squeeze has spread to all kinds of would-be home buyers:

And the real issue out there, frankly, is that four or five years ago almost 30% of the people in California could afford a home. And then that dropped to 11 or 12% affordability index. And unfortunately, the 11 or 12% was being supported by a lot of unusual mortgages — Alt-A and subprime. So what we’re facing today in California is — one, a very small pool of affordable buyers and that pool has been reliant largely on Alt-A and subprime mortgages, so we must get our pricing down, must get our costs down in order to move our number of units we want to move in California and that’s what we’re doing.

Time to get on the next call and hear what else happened in Sin City.

Jeff Matthews I Am Not Making This Up © 2007 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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