The real estate market is very seasonal. I thought it would take the poor sales of Fall/Winter to get us into Panic. Instead... The 'Invisible hand' did its job.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
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 end 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. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. Panic started barely within my fall prediction. We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
I'll blog Case-Shiller later in the week. You'll see that the seasonal 'gravity' on prices is increasing. This is the derivative. Its going in favor of buyers waiting. Think about what this will do to mortgage defaults. Heck, the Alt-A resets in Miami alone will clobber Jumbo loan default rates. Add in Phoenix, Las Vegas, and...
Yea. Capitulation sometime in 2009. We can ignore the emotions and come to the same conclusion. Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.
Got Popcorn?
Neil
5 comments:
It really is panic. Multiple coworkers are pulling throusands out of the banks 'just in case' they cannot get at it on payday. (These are savers.) Non-savers have a deer in the headlight look.
An ungodly number of coworkers have also taken time off the first few days of this week. Everyone is talking about deflation (even though most have no clue that is what they're discussing).
Some politician was on the TV last night talking about 'how easy it would be to tax the 401k's just a little more.' Boy was that a hot button issue at work today!
One coworker started a rumor that retail sales would be down 40% to 70% versus 2007... and everyone seemed to be talking as if that was a fact four hours later. Why does this matter? Negative rumors fly during panic. Its part of the emotional state.
This is all anecdotal. But man was it... odd at work today.
Got Popcorn?
Neil
Good post Neil. I agree with you, this was the toughest call to make because of its importance. Still, it was the right one.
Neil – ticky tack clarification on your post – I think you have an error somewhere. In your 4th to last paragraph:
“We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).”
Sounds like you are saying its faster than before. But yet see your last paragraph:
“Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.”
Here it sounds like you are saying its slower than before. Can you please clarify?
I'll have to clarify.
I believe we're seeing clear evidence that the economy is accelerated on the downside. Once we hit a low... I see no reason it wouldn't take a long time recovering due to the need to rebuild the credit system along more sustainable lines.
Others believe we're a more protracted downturn and this isn't yet panic. They believe the stages are more painful than the historical norm.
Good points. My wording, as is, is not clear. I'll think of a better wording and edit.
Got Popcorn?
Neil
I think I gotcha now. I think you are saying - Its quicker to the bottom (relative to what other bloggers are saying), and then longer on the bottom (relative to other downturns in the past).
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