Monday, August 20, 2007

Real Estate Emotions August Update

A review of the 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 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 mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation Could it be summer 2008 2009?
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom) Not over before summer 2011, probably later.
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)

Basically, I'm shocked at how much people can be in denial. While prices drop in FEAR, its during Capitualation through Despondency that we see the greatest price drop slope.

Conclusion: The "buying window" keeps shifting to the right. Disagree with the window? Let's chat in 2009, shall we? Most of the slide is because there just seem to be so many ready "knife catchers." They are starting to come out of the wood work. For homes they cannot afford! Sigh... patience. Patience.

I do think the current mortgage freeze up could accelerate things... but then I realize how far we have to go... I'm not happy we arrived where we are. Personally, I *really* like the idea of loans capped at $417,000 plus the down payment. ;)

Now to see if Fannie Mae canceling their August bond auction means anything. We won't know for months... but that could have me, for the first time, pulling my timeline back to the left! (Quick and abrupt market correction.)

Got popcorn?


Oc Bear said...

The new knife catcher loan is a 417K first and an 2nd to make up the difference. Sell the first to FNM and take the risk on the 2nd.

Rob Dawg said...

A favor. What is the filename for the Credit Suisse pdf for that graph of resets? TIA.

We are still in the clearing process of lesser fools trying to catch knives. They buy on the way down just like on the way up. The crap comming on the market this early is the worst. The best stuff will hang on longest. No buying oportunities for a long time.

wannabuy said...

Rob Dawg:


I found a copy at:

(broken up to fit page)

I've been charting on top of Exhibit 42 (page 47).

Oc bear,
Who is doing 2nds right now? I think we have a few more months of a "stalled market."

Got popcorn?

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Anonymous said...

In some parts of the country houses will be cheaper in 2017 than they are now. 25 years of normal appreciation was jammed into a four year window of 2001-2005. Under the rule of 72 an asset appreciating at 5% per year(pretty generous actually for normal housing) will double in 14 years or so, and reversion to the mean is a very powerful force. Start playing around with numbers using 1997-2001 as base prices. Pretty damn scary, huh? Some people who bought in early 2005 will never get back to even, even if they keep paying their mortgage. Lives will be forever altered by one decision; did you buy a house in 04-05, or keep renting. One decision can change your life.

incessant_din said...

I used a crude mapping of dates from L.A. Times headlines to the inventory surge to get an idea of timing. Inventory surging is the first sign of the market top, preceding the slowdown in prices, and it also happens to be something that gives you real-time data. Based on when inventory started surging this time (I forget the details, but I think it was summer 2005 for my targets, and more like early 2006 for L.A.), I predicted the bulk of the price loss in nominal terms would happen near the end of 2009 (for my target), and the recovery would begin at the beginning of 2011. I've done my planning with the idea that I should be trying to get liquid around the second half of 2009. Until then, I'm trying to mix safety and return, without being overly concerned with liquidity.

wannabuy said...


Thanks for your input. obviously from my chart, I'm not going to disagree with your timeline.

Neat thing about renting... we can debate for years before its time to "pull the trigger." I noticed your "wayward engineer" blog. Good stuff.


Peahippo said...

Neil, you have a lot of fans from your HBB postings ... perhaps more than you know. I'm one of them. However, you're still being too conservative.

One of the premises of the HBB Theory of Acceleration of The Recovery is that information is now so much more available that it will help people make the market more efficient. Unfortunately, this is dead wrong, and the proof of that has been right in front of our noses for the entire run-up. The vast information capacity for buyers and all the rest of the market participants didn't matter AT ALL for making the market more efficient. It just made them more greedy, and made the increase of prices and fraud larger. The run-up took about as long as any of the modern bubbles. People made absolutely ZERO use of contrary information, despite its presence.

Hence, the run-down will take about as long as we've seen in previous asset crashes. Access to widespread information will only make prices sink further, NOT reach the ground state faster.

The Great American Housing Bubble peaked in a 2-yr period, variously across the nation. The GAHB is still peaking in the Carolinas, which shows that the range is from late 2005 to late 2007. As we know, the peak is marked with the emotion of Euphoria. After that, there's about 1yr of Anxiety, then another year of Denial. That matches what's happening in California fairly well -- they are still in Denial. People are STILL planning on taking homes off list, to wait until the ever-hopeful Spring selling season.

Now, these 1-yr periods are variously modified by the inability of the buyers to hold on, lending outrages, and so on. So we can find instances where each post-peak stage is as little as 6 months. However, it's simply inaccurate to say the nation is in the Fear stage. When surveyed, sellers who support bubble pricing are firmly in the majority. That means DENIAL.

A national average of Fear should be reached by Feb '08, when signs of another poor Spring selling season should be apparent. By April '08, Fear will be in full swing.

After Fear really hits, the nearly-legendary ability of the American mind to stay in Denial will crumble quickly. Desperation should hit by Fall '08, and Panic by Feb '09. Let's not forget all the resets that will happen in 2010/11, too ... since even if Desperation and Panic don't accelerate a bit from the collapse of the great American stupidity machine, when those resets hit they will make them certain.

Remember, Neil, Americans are now world famous both at home and abroad for denying the least little bit of reality. Although I don't know what methods the banks and government will use to lengthen the crash, I do know they will do so. The waiving of lending rules from bank to brokerage for Citi and BoA is another fine example of one of many possible methods of pushing harsh reality into the future for a few more months. They haven't even gotten started yet, and they've already run though a hidden rate cut, an outright loan-bailout, a waiving of rules that protect the FDIC, and of course several state-by-state instances of pure tax-money bailouts.

I knew that government action would lengthen the crash by about 18 months. Well, I was more like "afraid" than "knew" ... and recent actions are only confirming my paranoia.

Don said...

For a time frame of less than 5 years, I would avoid stocks as an investment. Look into T-bills and corp bonds. 90 day T-bills are yielding around 4.75% and 1-year around 5% . If you can get into a credit union, you can beat that on CDs (I get 5.31%/5.45APY from my credit union on a 9-month multiple add-on where I can add onto the balance up to the initial deposit amount for the life of the CD). I haven't seen any bond yields that made sense last time I checked, but I may take another look and see if there are any high yields that I would trust for our time frame. I'm anticipating that we'll be shifting to 30 day CDs/money markets in 2009 to be prepared to look at buying opportunities as they arise.