Time to Short Florida

I generally don’t sell stocks short, due to unlimited downside and exposure to speculative bubbles. You can be right in the long run, yet get killed by a margin call in the short run.

That said, if I were to sell something short now, it would be the entire state of Florida.

Regional real estate wipeouts all tend to repeat a certain trajectory:

  1. Buyers vanish, but sellers are unwilling to drop prices.
  2. Consequently, the number of sales collapses.
  3. A year or two goes by.
  4. Sellers start giving up and reduce asking prices.
  5. Buyers see prices falling, and decide to wait it out.
  6. Sellers are forced to reduce prices further.
  7. If seller’s equity falls below zero, they stop paying mortgages.
  8. Bad loans proliferate.
  9. Banks with geographically concentrated loan portfolios start going broke.

This has happened several times in regional markets in the U.S. — Houston is the most flamboyant example of the last 30 years.

In Florida, we have arrived at Step 2 (see above) with the recent report that the number of sales in Broward County in south Florida has fallen 34% from last year. Median price fell less than 1% — we’re now waiting to complete Step 3.

This problem may extend to other states as well. But Florida looks particularly bad, because:

Now, it’s possible Miami will become a charming, windblown Venice, connected to the mainland by a 100-mile, hurricane-proof causeway, giant desalination plants humming 24/7. Then again, I wouldn’t bet my own money on that.

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