Business Week Needs to Hire an Economist

I like Business Week the magazine. I have them set up on Google reader and usually enjoy their articles. Typically they get it right when reporting on business and economic issues. Today however someone may have missed the target. It is not one article, but a combination of two articles, one right after the other that caught my attention.

First: California's Economy Too Big to Fail? Basically the government of California is probably going bankrupt, because the US Federal government has shown no inclination to give the state a "bailout". Maybe someone finally told Obama that he already spent too much bailing out GM and the Banks and his own checkbook was overdrawn. The state is expected to lay off somewhere around 60,000 workers and issue IOU's to pay it's debts. As a side note California already has the lowest bond rating of the 50 states. None of this would indicate that situation is going to improve.

Second: Is California Real Estate Near Bottom? A few micro-economic statistics would indicate that California real estate prices have bottomed out and may be headed back up. A lot of credit is given to the combination of $8,000 Federal First Time Homebuyer Credit paired with the new state issued $10,000 credit for buyers of new homes.

It seems to me there is a disconnect somewhere between these two articles. Even though they are listed side by side, maybe two different editors proofed and approved these articles. Whatever the problem is, I am pretty sure that if your state government is going bankrupt, laying off 60,000 people and drastically cutting back services it is not going to mean real estate prices are headed up. The folks counting on a $10,000 home buying credit will not be able to spend an IOU. Even the federally subsidized banks are going to require good old US currency to make that house payment.

For my friends who are California real estate investors (you know who you are!) my advice is don't jump in just yet. My prediction is things are still going to get worse before they start getting better. Besides I have some great deals for you in Texas!