Thursday, April 05, 2007

Real estate emotions update

I like to do about a monthly update on my take of real estate emotions. Since foreclosure sales have been reported to be climbing in California, now seems to be a good time to post.

This is my last post on the real estate emotions topic:

Let's see how things have changed (or not changed):
A review of investment emotions.
1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
****6. Denial Reached in October of 2006 Current state persisting****
7. Fear We're not there yet, but in we'll cross that line within 45 days.
8. Desperation Predicted for July/August 2007
9. Panic
10 Capitulation Could it be summer 2008?
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom) Not before summer 2010
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 am making one timeline changes since 2/15/07 post. After reading blogs on real estate time lines it now is obvious to me that the bottom will not hit before mid-2010. OK, I noted that the next step fear will be achieved by mid June. Otherwise, we seem to be right on track.

If you want a pretty bearish analysis of Irvine home prices:

However, at those prices my grandmother would be buying three or four homes for her grand kids in OC. So I'm not thinking we'll dive that far or that long. Don't get me wrong, I really like the analysis IrvineRenter performed. I agree with the numbers up to October of 2008. There I disagree. I think late 2008 will be a little worse than IrvineRenter's prediction. But I think the bottom in 2010 will be up at about $330k.

Neat thing... We have 16+ months to discuss and change our minds. There is absolutely no rush. Its just a debate on when the optimal buying window will be.

I still think anyone who buys before Fall of 2008 is throwing away money. Only at that point will there be enough selection for it to be worth picking up a property; only one that is so special its worth leaving $100k+ on the table. (There are those properties.)

Also, because of tax advantages, I'm not going to fret about the last $50k of the drop. :) Remember, I place a higher utilization value on a home than most housing bears, so when the optimal buying window is for you might be different than for me.

That said, every investment bank seems be be predicting a moderate national price drop in 2007 and a bigger one in 2008. Since I have a down payment saved up and do not believe rates will go up much more... I'll wait until enough serial refinancers have handed back the keys to the bank to drive prices down. The tidbit that 75% of foreclosures are older "seasoned" purchases that had 3 to 5 equity withdrawls is.... interesting. Its going to open up a lot more inventory for us that are patient.

Step 10 will have the steepest price drop. Wait for that step to at least be well along.

Got popcorn?


TJ & The Bear said...

Agreed that housing itself will suffer the lion's share of its drops by 2010 or so, but... the economic fallout will facilitate huge follow-on crises that'll steadily grind prices lower for ten years thereafter.

That'll be a nasty surprise to those that think this is just a housing bubble.

sandman said...


I have to disagree slightly. I think we entered fear around a month ago, when it was clear that subprime was collapsing (i.e. when the MSM had their epiphany).

Sure, people remain in denial about a few aspects of this. Alt-a and prime's pending collapse is the main one. But generally I'm hearing fearful comments from the MSM and people I know. The fact that the MSM is asking questions about the housing bubble is the key.

Keep up the awesome blog.

wannabuy said...


You might be right about fear... but so many people are still excited about real estate... So I'm going to stick with denial for a little bit longer. But fear is soon. Very soon...

Got popcorn?