People have been asking me a lot of questions lately about foreclosures, shorts sales, and the elusive shadow inventory. From my conversations with both readers and real estate professionals, as well as my reading of articles and blogs on the internet, it is clear to me that most people do not have a grasp for what is coming in this current housing market crisis.

Perhaps the best way to communicate my concerns about the housing market is with a short analogy. An analogy is useful because it is simple and easy to understand. Once we show the parallel between the analogy and the real estate market, you will then understand what I believe is a huge oversight in our nation’s real estate reporting and housing speculation markets. So, without further ado…

The Lemonade Stand

One day “Jack” decided that a great way to make a living in Tallahassee would be to set up a lemonade stand in his neighborhood. He figured with temperatures risingover 100 degrees out there every day people were getting really thirsty.

So, Jack went and bought what he thought he needed to set up a profitable business. Here is what he bought:

• a few bushels of lemons
• several pounds of sugar
• some disposable cups
• an ice maker
• a cooler
• some containers to hold the lemonade
• a nice table with chairs for his stand
• and a big poster to make a “Lemonade for Sale” sign

Jack figured out how much he had invested into all the materials and decided if he could sell cups of lemonade for $1.00, he could make a fair profit and could provide lemonade for the thirsty people of Tallahassee. He was so excited about his new business that he started making lemonade right away.

[click to for the rest of the housing market analogy…]