Thursday, January 18, 2007

Pattern is locked

I have an old expression (for me) that I use when its obvious when the future can be predicted: "the pattern is locked." Its finally happened for the economy and thus real estate.

If you haven't kept track of home inventory, take a look over at OCrenter's blog. No matter what happens in 2007, there will be more homes on the market than sales. There is talk that 1/3rd of the homes listed in Southern California 2007 (Q1 through Q3) won't be able to sell. NO MATTER THE PRICE. I can't vouch for that... but it has the "feeling" of being the truth.

CR also has an excellent blog. Currently he is forcasting a huge drop in Construction employment in the March through May time frame (my interpretation of his graphs). In an already precarious climate, having such a large industry lay off rapidly will due untold damage to retail sales, banking (via loan default), and eventually real estate values.

Now we have Bernake warning that government spending must be cut due to the hit the economy will take when the baby boomers retire... oops!
I'm thinking that the negative ~3% savings rate is about to go flat to positive for the US consumer. Quickly too.

So I follow real estate. I'm very thankfull for bearmaster's local blog (to me) detailing the differnces between asking prices and sales prices. This has be added to her normal monthly charts. I'm all for numbers. Eventually they'll show that its time to buy. But don't worry, there will be a long time before there is risk of monthly payment increases; the typical buyer is overstretched as is. Companies are gettng ready to move.

I keep coming back to my personal favorite blog post. Why? It helps me understand how this market must slowly progress through stages to get back to sanity. Besides, we'll overshoot on the negative... A good thing to understand.

I like this post so much I want to repost the emotions of an equity market like real estate:
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)

I declared in October were in Denial.

We're starting to approach Fear. (Not there yet... but close). I think that in July or August is still the time frame for Desperation.

About right... the "spring bounce" (or lack thereof) is going to send us into Fear.

Don't for get half way between steps 11 and 12 are the lowest prices. We're at about 6.5 on the 15 step program. If you buy before 10, you're leaving a lot of money on the table. While its hard to know when its in 11 or 12... You can at least know when Capitualation has started.

Got popcorn?

1 comment:

Anonymous said...

I think your comments have merit and cannot find fault with your conclusion. BTW, I'm in the builder business, so my outlook is looking for the positives. There has been a pick up of late but I doubt it will be sustainable (at this point in the cycle)