Plankton Theory Revisted

Remember some time ago, I referenced Plankton Theory which likened first-time home buyers to plankton, the essential life force of the real estate food chain. Price them out of the market, and a chain reaction suffocates the rest of the market. This Press Enterprise article quote shows that force in action.

“Inland Southern California’s home sales last month were the worst in a decade in Riverside County...We have seen rising foreclosure activity through the year and no sign it is done climbing, and we are now seeing some real steep declines in prices. It is very difficult to say where bottom is,’ said Andrew LePage, analyst for DataQuick."

The news that Forbes ranks Sacramento as the third riskiest housing market in the country - and the riskiest investment in California-quickens my heart. Sacramento's share of adjustable-rate mortgages exceeds 50 percent. Which means that the market has nowhere to go but down.