Sunday, June 01, 2008

Tardy May Real estate emotions

Ok,sleep out prioritized this update. Here is the quick summary: No change.

Not to mention work is crazy! We're keeping to our "deliver technical miracles schedule!"

We're continuing on in the major emotional transition state of Desperation. The amount of anger in the system seems to be oscillating with no perceptible national change this month. I expect anger to peak either this summer or next summer; the Ponzi victims remain upset that the news about the emperor being naked is getting out Why? active emotions peak in hot weather

I just love this quote. Its so appropriate to the housing bubble:
Ponzi's supporters were outraged at the officers who arrested him. 17,000 people had invested millions, maybe tens of millions, with Ponzi. Many who were ruined were so blinded by their faith in the man or their refusal to admit their foolishness that they still regarded him as a hero.

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

Stability: 40% (Old homeowners and bubble bloggers)
Immobilization: 17% (Prices dropping? Can't be.)
Denial: 8% (No! Real estate only goes up!)
Anger: 15% (This one must be discussed)
Bargaining: 5% (Ok, we can cut the price and lead the market)
Depression: 5% (We're going to lose our home. Just let them take it...)
Testing: 5%
Acceptance: 5% (Stop payming, we're toast. Move back in with mom.)
No change.

Comment: None. No change. We're in idle. My data has big holes in it every year this time of year... it seems to be a time that buyers are ambivalent about real estate (in general, not everyone obviously). Or maybe its just me enjoying the weather change. :)

Onto the investment emotions. We're deep in desperation, with Florida trending into Panic as the front runner. This is the same graph I updated in January; emotions are progressing on that timeline. Option-Arms are hitting their limits and helping drive the correction and emotion changes. For most of this year we'll stick in desperation. Anyone who thinks this will turn quickly is trying to sell you something.

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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. ****Desperation: Current state ***** since mid/late February 2008
9. Panic: Fall 2008 looks to be the start. Probably late fall
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
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. Don't let anyone BS you into buying soon.
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. This year will only begin to shake out the more feeble 'homeowners.' 2009 is when I predict the greatest price drops (both nominal and real prices). The bottom is a long way off... We'll be into 2010 before we have enough information to guess when the bottom *might* occur.

The option-ARM resets will be the motivator in 2008/2009. Not the planned resets, but the loans hitting their limits (due to negative amortization) or when J6P realizes their overpriced McMansion isn't the road to riches they imagined and putting 50%+ of income into a failed investment is just throwing good money after bad. Recall, over 90% of Option-ARM borrowers only pay the minimum; that negative amortization is going to drive the market in 2008 and 2009 as more and more home-debtors flee the pain.

The time to start looking is when your local news goes from covering the foreclosure bargains to why its smart to rent. Until that happens, the wanna be Trumps will be liquidating their failed mini-empires. This will drive investment emotions. Emotions, income, and inventory will drive transaction rates and prices.

Yea... an almost copy and paste of last month's article. Really, nothing much changed.

Got popcorn?

No comments: