Thursday, December 27, 2007

Real Estate Emotions December Update

Happy Holidays to everyone. As you can imagine, there just isn't much of a change in real estate emotions during December. People shop, eat, and otherwise pay little attention to real estate during this month. Unless they are a seller... but then they know they have to wait. But look at the inventory... Nationally its rather high. So we can expect some rapid transitions in December.

To the K├╝bler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 24% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 9% (This one must be discussed)
Bargaining: 3% (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)

We're progressing up the stages, but continued buildup at Anger. I see anger everywhere from sellers and the REIC. This month it was easy to deal with (add fake smile and say "Merry Christmas." My that shuts up complainers...)

My timeline is staying constant:

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 January/February 2008 late edit
9. Panic: mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation: Looking like the winter of 2008/2009 through the winter of 2009. Yes... I'm now predicting a one year emotion state!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as 2010. Much more uncertainty here.
12 Depression (end of market price bottom) Not over before summer 2011, probably later. It could be as late as 2014.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...) about 2017
15 Optimism (cycle starts again)

Sellers bet the farm (house) on appreciating real estate and those days are gone. Next year (2008) will only begin to shake out the more feeble 'homeowners.' It will also start the cycle of having banks sell REO's at reasonable prices. 2009 is still when I predict the greatest price drops (both nominal and real prices).

Its not yet time to buy. Not even close. Even the MSM is willing to write off 2008 at this point. But J6P is not willing to look out more than a year ahead. Oh... there are areas doing fine (NY, NY which is falling apart) or Portland, OR (one of the few markets I think will only soften). Wait. Sales are approaching 50% of the peak year sales. As noted today on the HBB, there is no smooth transition to a buyer's market. Let's let that transition go through.

January and February are the two toughest months of the year to sell a house. I expect the Case-Shiller numbers from those two months to wake up everyone. Where I want to buy went down 2% in October (latest numbers available). I expect a nice discount after this winter. More after next winter.

edit: I liked this video on the ABC 'defining economic news of 2007'.

WARNING. The ad after the short clip is LOUD.

Got popcorn?

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