Monday, June 18, 2007
Real Estate Emotions June Update
I'm finally back long enough to update my "real estate emotions" series. The purpose, for me and my friends, is to get a better idea of when to buy and how this market is progressing.
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 until mid-May of 2007)
****7. Fear (Reached in mid-May of 2007). *****Current state****
8. Desperation Predicted to start in mid-October/November/December 2007
9. Panic: Early 2008 looks to be the start. Exactly when? Depends on the credit markets.
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)
We're really staying on the same timeframe. Compared to early predictions of mine, the market bottom has shifted to the right.
This is an article from one of my favorite blogs:
Notice something? Mortgages that reset in 2006 have ~12% that are "problem children." For Mortgages that reset in 2007 its 18% (and the resets just accelerated).
For the 76% of the mortgages that reset in 2006, how many were sold to solvent end users? How many were refinanced?
I believe it will get very ugly post "back to school." Tighter mortgage markets, more inventory, and seasonally slow sales piled onto a declining sales line.
Also don't forget the ARM resets:
(Fair use of the image from the famous Credit Suisse report):
We're still in month #6 (June 2007). My "calibrated eye" reads ~$37billion resetting this month. In October/November/December where each month breaks $45 billion... could be interesting (hence my prediction on the transition to desperation).
I should note in the last downturn it took ~3 years to go from fear to Despondency. It took the Northridge earthquake to rush people into Capitulation. I believe we will hit a hedge fund margin call mania in 2008 that will accelerate the process.
I could be wrong... in which case the emotional states will linger.
I'm very disappointed in my apartment complex selection. For one reason only: they started letting in section 8. (I should have realized that when they cut rents to *just* below the section 8 threshold in this townhouse complex... Why didn't I find out what that threshold was before signing a lease... My mistake.) I believe in 8 months I'll be posting about another move. (Heck of a lot better than if I had purchased a house...)
We're still settling in to married life, so expect less frequent updates.