Monday, October 02, 2006

Market Cycles: Time to buy 2008 or 2009?

There is an emotional cycle to a market:

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak)
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial
7. Fear
8. Desperation
9. Panic
10 Capitulation
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom)
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

Judging from the press, home prices, and advertisements out there. I'm going to declare us in Denial. It took 10 months to go from Euphoria to Denial. Does this mean that in July or August of 2007 we'll be in Desperation? Probably, assuming the time scale stays constant. That means Capitulation won't happen until May of 2008 and Despondency through Depression might be summer and fall of 2008; that would be the best time to buy.

Warning: It could be a much slower cycle. But we seem to be progressing much faster than the Japanese recession. Why?

1. The Japanese had an amazing savings rate. They could ride out almost anything. We have zero to negative savings.
2. The internet is spreading information much faster than in the past. Economic cycles are very accelerated.
3. The Japanese economy falling wouldn't impact anyone else's economy. Any guess what American luxury buying habits do if we go into a recession? ;) Look at the Japanese economy, for the first few years luxury sales were down. We import most luxuaries.
4. The US market is far more overbuilt than the Japanese market

Now this speed of the downturn is slower than previous predictions of mine. Cest la vie. However, its pretty obvious that we have to write off 2007 as having no chance of a home market recovery. The only question is when do we hit bottom?


az_lender said...

Reasonable analysis. I personally have been surprised at the speed of the evolution since January, even though I was surprised at how long it took to get started. Yesterday in a comment to B.Jones's blog I was saying I thought this might bottom in 2014, but your optimistic projeciton of 08 or 09 could come true if the crash comes soon enough.

wannabuy said...

My projection could be optimistic... But I simply see too many people with little to no equity and thus there is no reason for them to "ride this out" as was common in previous recessions.


Anonymous said...

I think your analysis is well based. I think the keys are: lack of US savings therefore quicker turnaround, the flat world we live in is an accelerator and our media thrives on hype therefore we respond quicker. Also our financial system is less rigid and therefore can adjust and adapt to flush out this better then the Japanese were able.I think the RE high rise Condo market in LV will take longer since the most inverntory has not hit the streets yet but for a large percentage of markets it will play out as you predict. Shakes

irvinesinglemom said...

I completely agree! I plan on buying mid-2008 in Irvine, CA. I expect zero/flat appreciation for several years after that before appreciation starts up again at a rate based on fundamentals - at least until the next bubble!

Anonymous said...

I think it will take a bit longer as attachment to homes is very emotional. A lot of people will hold on until they have exausted their credit and there are a lot of ARMs out there that won't adjust for 2-5 years. I say 5 years to Capitulation.

wannabuy said...

Anon 7:14

My point is too many people have exhausted their credit in the good times. Thus, a quicker downturn than normal. Real estate is driven by the margins, not the bulk. I do agree there still will be distressed sellers in 5 years: that will keep the market flat for an extended period of time.

As to some condos.. they're just toast for a decade or more:Miami, Palm Beach, San Diego, Vegas, Washington DC, etc. People will fear to buy a condo for a very long time. Thus I hope to save my pennies and buy one in about 2012 for vacation purposes. :)


raj mangal said...

I anticipate your assay is able-bodied based. I anticipate the keys are: abridgement of US accumulation accordingly quicker turnaround, the collapsed apple we alive in is an accelerator and our media thrives on advertising accordingly we acknowledge quicker. Real estate for sale ads