Wednesday, October 29, 2008

Real Estate Emotions: October, Panic it is.

Last month I blogged on start of panic. At the time I thought I could be calling the emotion early. The last 30 days have proven we are definitely in Panic. Only in Panic do we see the shifts we are. For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation. You have five or six months to wait until the start of Capitulation and then another year for the emotion to do 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 (six months instead of a year) that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.

Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one.

Got Popcorn?


The Anonymous said...

Neil - a little OT, but I have to ask, where are the inventory and CS graphs? You havent done inventory in the last month, or CS in the last 2 months. Are you not doing them anymore?

wannabuy said...

The Anon,

I'm actually trying to get an inventory article together. Last month I skipped CS as quite a few other blogs did enough articles and with the new little one... I went for sleep! ;)

I'm still accumulating the data. Its just time to graph it and figure out what's new.

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