Wednesday, November 21, 2007

Real Estate Emotions November Update

Is it the holidays keeping the real estate emotions stuck in fear? Quite bluntly, no one but a few of us seems that concerned with real estate this holiday season. Yes, the markets are going down due to real estate and sellers are scared... but everyone knows this is the slow season and that seems to be slipping the real estate emotion timeline to the right. As to the Kübler-Ross grief cycle, just a small shift from immobilization to denial and a bit more into bargaining. No major shift, but a trend that is looking good from the buyer's perspective.

To the Kübler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 23% (Prices dropping? Can't be.)
Denial: 6% (No! Real estate only goes up!)
Anger: 8% (This one must be discussed)
Bargaining: 4% (Ok, we can cut the price and lead the market)
Depression: 3% (We're going to lose our home. Just let them take it...)
Testing: 4%
Acceptance: 2% (Walk away, we're toast)

Here is the text version of the emotions. Changes in bold

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 early 2008 shifts to right by two month
9. Panic: Mid 2008 looks to be the start. More shifting to the right
10 Capitulation: Moved to start of 2009; that brutal January/February market will get it going.
11 Despondency (start of market price bottom) I've gone from "possibly 2010" to definitely 2010. .)
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) 2012 is the earliest
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again) 2017

So for this month we again have more anger and a stronger presence in fear. But desperation seems determined to let the holidays happen first. Real estate emotions move slower than you would think; all of my corrections have been to the right. I did some pretty major shifts to the right this month and believe this timeline should hold for a while. The conclusion? Price drops through 2008 and at a faster pace in 2009. The start of the "long flat" in prices in 2010. The end of the flat? 2012. People like to believe real estate will recover in a "V" shape. Nope. This will be like real estate in the 1990's ("L" shaped recovery with a long bottom) or the dot com stocks (years of flat prices before growing).

Got popcorn?


tj & the bear said...

Although you're making progress -- the timeline is getting better all the time -- the "long flat" will likely last far past 2012. The boomer retirement wave hits its stride in 2010 and the demographics won't turn back up until 2020.

wannabuy said...


We'll import enough labor to bring it back up by 2015. ;)

Then again, no one expected the 1930's to be as bad as they were 1931 through 1938.

We'll get through the holidays pretty easy... but when will the first big bank hit the implode-o-meter?

I'm very glad I found the blogs when I did. I'd hate to think what's going through someone's mind if they just discover the bubble blogsphere.

11.4 times income home pricing... and people expect a recovery quick... NOT! I'm not sure we'll ever see 3X home prices back in LA... but its certainly going to start down that slipper slope.

Happy thanksgiving everyone!

sandman said...

Happy thanksgiving Neil, hope you had a good one.

As for the timeline, I think you can currently place us in fear or desperation, and either way you'd be right. This feels like middle ground between the two, but the banks writing down their losses in many small chunks is a great sign of progression on the chart.

I believe tj is likely correct, there won't be any recovery in the near future. The upcoming recession will dictate that timeline, but our politicians seem to be doing everything in their power to extend things.

Your point about no "V" bottom is very true. Many people tell me that they're afraid of missing the bottom. They look at me blankly when I laugh, then I tell them that they'll have at least 24 months to identify the bottom and jump in. This is the next message that needs to get out, as Realtors will do their best to push the big "V". I believe you once said "it's better to lose 5% and know we're recovering than to lose 40% on a false bottom".

wannabuy said...


So true. The REIC is trying to create the impression that it could be a "V" bottom. No way. Why the words you used weren't mine, I 100% agree. Its better to loose a few percent than get hit in the "bear trap."

No salesman likes an informed cautious buyer. Just wait until credit gets tougher... Then prices will really have to have to adjust to the market clearing price.

But dinner table conversations point to many not being ready to accept we're in a bubble... cest la vie. There is no doubt the market is turning.

Got popcorn?