Real Estate comments: emotions

Showing posts with label emotions. Show all posts

Sunday, June 21, 2009

June Real Estate Emotions.

Well... I missed the transition to Capitulation. But in the zip code I care about, you can see a roll into it starting a week ago. Why do I say this? People I know who own and I thought could afford multiple homes are now putting their *primary* home on the market. Families I know who proudly held onto oversize homes are suddenly finding an urge to downsize and move closer to grandkids. Quite a few people just decided to 'retire' (business dried up) and move full time into their vacation home.

While Capitulation seems to be happening is Phoenix and a few other cities, it certainly isn't national. Ok. We're towards the last part of the best time of the year for sellers.

For California, the budget debacle will probably be blamed for tipping us into Capitulation. But I do not think the budget is the root cause. Its just a coincident event. Any tax increase will just be an excuse to cut unprofitable business ventures. Any layoffs will be minor compared to what is naturally happening.

I'm seeing more people going to mocking buyers. We've been hearing this since 2003. Its not going to work on the people that held out that long. Investment emotions have to be worked through. It is a process that cannot be skipped. We've gone from being too invested in real estate to 'doubling down.' Instead of investing in infrastructure, we've extended the bubble. Which as kept the builders building... which lowers the final bottom price. :)

The latest update by Fitch is that CA real estate prices will drop 36%.

Their national prediction seems reasonable. I would have put California price drops, in a longer timeframe, at 30%. We'll see which is right.

In December I noted: "What I'm noticing is that no one seems to be willing to say real estate is a bad investment!" 40% of the local homes are selling to investors!

What I'm seeing is homes that are well priced and qualify for a FHA loan are selling quickly. But what really interests me is that the 'well priced' home is getting better month by month. Local sales are pitiful. Where are the months that break 100 sales per month? That used to be typical for many of the local zip codes? Ranch PV (90275) Sold a mere 17 homes in May at a Median price of $970k. Wait... that is a conforming loan with 20% down! There is an absolute wall above conforming+20% down. Heck, conforming +10% down is slow.
DQ-link, updates to latest (no archive)

But then we see rates on jumbo and jumbo conforming disconnecting from the standard product. Not to mention the jobs situation. Nothing like a dose of financial reality to splash cold water onto the local market.

What I'm seeing is people are willing to jump in (FHA). If they miss-bet... well, it was only 3.5% and they're planning to keep 10% of the home's price is a crush fund.

As I noted before, the home market is still worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have only a month or two to wait until the start of Capitulation and then another year for the emotion to do its job. We're rolling into the emotion. Let's face it, at today's prices, a buyer must go 'all in' to purchase. Any financial hiccup and they lose their down payment. Should it surprise anyone the market is retreating to FHA? Oh, a few are trying to get ahead.

I'll update this figure when we're into capitulation. We're so close I can almost taste it. The buying season is dying off. Pretty much everyone I know has a close friend who has been hit hard by this downturn. Heck, everyone I know also knows someone with a failed flip.

I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. 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 miss prediced too short of a panic (six months, it looks to be 10). We're just now blending from Panic into Capitulation. Remember, Capitulation is the time of the greatest price drops. I'm referring to total rate of dollar value drop off. I'm thinking Lancaster might be close enough to the bottom.

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. I would love it if someone who point out a forward looking indicator that isn't ugly.

To think, the majority of layoffs lie ahead.

Now, there are some positive indicators out there.
But look at CR's latest on DC.

Prices track incomes.

Thus, why I think there are a few areas worth buying into. For most, wait.
The #1 indicator I'm seeing is that some of the loudest 'Prices always go up' people I know have put their homes on the market. These homes would have easily sold for $1.3M to $1.7M during the peak. All quickly drop their prices to below a million. Some then sell, some are still sitting. All above a million... sit. Its the homes that were going for $1.9 to $2.2 that seem to be able to fetch $1.3M right now.

The local equivalent of Case Shiller has been dropping fast. I'm really going to be interested to see the $/sqft for September 2009-February 2010 (see two posts ago). It has the feel of a sharp turn down coming (not yet here).

Until employment improves, housing will tank. Too many areas are near or breaking 10%. What I'm worried about is that people I *never* talk economics/housing with are scared of depression. That meme has taken hold. I'm talking about parents I interact with to be a parent. Around the kids, it should only be about the kids. But too many parents are fearing for their job.

I'm going to remember this spring bounce of optimism. It was interesting. It makes it clear why my fellow bears insisted emotions last a year. I will modify that, they can only change if the seasonal mood helps enable the change. For the stock market its 'Sell in May and go away.' For housing, the spring selling season is quite the drive.

Oh, five friends have admitted selling every stock, mutual fund, etc. They have retreated to T-bills. I'm talking everything (including 401k's). Too many have not made money for two decades in the stock market. While this could reverse quickly... it indicates a sharply changing emotional state. Of those I know who invest in real estate, only a small fraction have any capital left. With 40% of sales to investors... it will get interesting.

Late edit: I notice the latest REMax commercial is sellers 'waiting for the market to heat up' instead of 'buyers kicking themselves for not getting into the market.'
Rotfl. While I appreciate the Realtors (tm) must advertise to both sides of the market... I think their advertising board might be accepting reality.

Got Popcorn?
Neil

Sunday, December 21, 2008

Real Estate Emotions: December, continued Panic

Holiday emotions seem to be blunting the 3rd month of panic. I'm questioning the chance of a quick emotion change. But then again...there are always cycles withing cycles and this could just be the pause before panic progresses on. The credit markets do seem ready to move things along...

What I'm noticing is that no one seems to be willing to say real estate is a bad investment! Too many are itching to buy. Thus... We seem to be getting further from capitulation.

But then we see rates on jumbo and jumbo conforming disconnecting from the standard product. Not to mention the jobs situation. Nothing like a dose of financial reality to splash cold water onto the bare scalp of a Trump wanna be.

As I noted last month, its worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have four or five months to wait until the start of Capitulation and then another year for the emotion to do its job.

For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index. Basically, there is very little demand to charter ships.

The above is from Bloomberg

You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 733), it implies an imploding world economy. Yea... things are much worse than I thought they would be.

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!

Friday, November 28, 2008

Real Estate Emotions: November, continued Panic

We're two months into panic now. Let's be blunt, its worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have four or five months to wait until the start of Capitulation and then another year for the emotion to do its job.

For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index.

The above is from Bloomberg

You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 818 ~~733~~), it implies an imploding world economy. Yea... things are much worse than I thought they would be.

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!

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!

Tuesday, September 30, 2008

Real Estate Emotions: September, Start of Panic

Last month I blogged on how the bank situation and how it would push the emotions. How many banks failed this month? I'm still a bit in shock with that. So while there is a risk of calling it a few weeks early; I'm calling the emotion Panic.

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!

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

Monday, September 01, 2008

Tardy August real estate emotions

Please see my last article for a list of troubled banks. Note: I expect a few bank failures that didn't make that list. God bless creative accounting. ;)

Why are the banks important? It would take an Indymac sized bank to push us through an early emotional transition or enough small banks to add up to that level of uninsured deposits. Right now... I consider that unlikely before the next chronological shift.

The real estate market is very seasonal. The poor sales of Fall/Winter will drive us to the next emotional level (Desperation to Panic). This will be the toughest emotional call for me. Why?
1. I'm not traveling like I was. No more 3+ states every month (New Baby, I'm staying grounded through 2008).
2. The local emotions are no longer the quiet passive emotions. FB's are no longer suffering in silence. Yea... this is an artifact of the later states of desperation. But it does mean that while my work site has employees from 12+ states... its tougher to separate the local emotions from the visitor emotions and keep a national perspective.

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!

We're pretty much right on schedule. The only new bit is that one or two more trigger events will put us into panic. But most likely, it will happen seasonally at the end of Fall. That is unless some of the large banks we're concerned about are taken over by the FDIC or the stock market tanks. Neither can be ruled out... 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.

Late Edit: Why are SoCal emotions starting to become overwhelming,
From Mish

Notice something? For SoCal, the '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

Thursday, July 17, 2008

July Real Estate Emotions

This aricle is early. Why? The emotions due to the Indymac closure. I believe we are one to two major bank failures away from an acceleration to the next emotional state. Even without the bank failures, we're going to hit panic by the late Fall. The economy is that bad! We're still in desperation... but its only going to take one or two more trigger events to send us into emotion #9: Panic.

This is a photo of what the lines are like at Indymac. Its not ust this Pasadena location, I've seen it at several others. People are moving their money around... its not normal. If Indymac had failed in the fall, it would have sent us into panic. Since if failed now... its wait and see if another big bank sends the real estate emotions forward. Note: I always expected bank failures. Its just odd watching them be the drivers.

I'm halting doing the Kubler-Ross scale. I haven't found it to be a good predictor of anything... Not when all of the lemmings are going towards the cliff together...

I've been using the following graph to illustrate the emotion changes versus the ARM resets. At this point, it might be better to graph versus something else... or maybe I'll keep it; the missed payments have put us into quite the credit crunch.

We're pretty much right on schedule. The only new bit is that one or two more trigger events will put us into panic. We could be into panic as early as August (I think we've survived July). But most likely, it will happen seasonally. That is unless some of the large banks we're concerned about are taken over by the FDIC. We're on an accelerated cycled. 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 Capitualation. Remember, Capitualation is the time of the greatest price drops. At least in the markets that survive until then.

Wednesday, July 16, 2008

Bank Emotions

Other blogs are reporting that there have been disturbances at Indymac and Wamu branches as customers cannot get at their money in a timely fashion. (e.g., a relative spent four hours in line at Indymac until they finally wised up and gave out numbers and most of the line was told to come back two days later!)

Why am I blogging this? I've been predicting we'd switch to the next real estate emotion, Panic, in the Fall. I still think that is the case. But here in California, I think we are one more large bank failure away; at most two bank failures.

My timeline still looks to be accurate. It looks like the FDIC will drag out the failures. But there is more uncertainty than ever.

For those of you who thought ever rising real estate prices were a good thing. Thanks, you just screwed 10,000 savers out of their money. Ten thousand is the number of Indymac customers who's deposits were not insured.

Am I the only one who finds it funny that the TV cameras focus on the "#1 Savings and Loan in LA" signs up at every Indymac?

Got Popcorn?
Neil

Thursday, June 26, 2008

June Real Estate Emotions

With the focus on oil prices, its almost not worth writing what I consider my signature article. The talk is all about "middle class price out" in between discussions on new $15,000 motorcycles that get 50 or 60 mpg. (Sweet rides! If I wasn't about to become a father... oh, I think a few 'fish stories' on mpg are creeping up around various social circles.)

If you read last month's article, don't even both reading except for the concluding paragraph. Despite oil, stock prices, economic pain... The investment emotions haven't progressed at all. This is the weakest summer selling season in over a decade. Most comparisons are too the 'peace dividend recession.' And yet... there is a false hope out there.

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.

http://en.wikipedia.org/wiki/Ponzi

To the Kübler-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.

Tuesday, June 10, 2008

Alternate view on state of real estate emotions

I really like the Irvine housing blog.
Irvinerenter has a different opinion on where we are on real estate emotions.

I think we'll see Panic in Fall, late fall. Irvine renter thinks we're in a year of denial and that we won't see panic this year but rather fear this fall and winter.

The Irvine housing blog post

Either perception says wait. There won't be a quick recovery. With higher down payment requirements, righter credit (no longer just 'fogging a mirror'), and the recession... We won't see peak prices again for a long time. I'm now thinking, even with inflation, that my 2017 estimate is too optimistic. When do you think we'll see peak prices again?

Got Popcorn?
Neil

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.

http://en.wikipedia.org/wiki/Ponzi

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

Sunday, April 27, 2008

Real Estate Emotions April Update

Edit 4/29/08: 2nd Edit 4/30/08, original edit removed, back to the main article on the assumption the comment section returns to gentle discussion. I encourage multiple views. I'll even go so far as to point out it doesn't matter if you buy within six months of the bottom. It just will not impact your standard of living. That said, I strongly believe in the old school mortgage rules. If you are not buying with the type of mortgage your parents bought with, you're running a high risk of being a foreclosure statistic.

But if you haven't noticed, I value graphs. Far more useful than tabular data. I also believe in plotting out the season differences too (e.g., plot by month with a new line per year)

My job involves implementing what the pendents say will never work composed of mindsets that inherently cannot agree. I'm posting less this week as I promised a technical miracle by Sunday three years ago. My best current estimate is we'll finish by Saturday! ;)

small wordsmithing edits below on 4/30/08 to 'clean up' No change in thought or conclusion.

We're continuing on in the major emotional transition state of Desperation. The amount of anger in the system seems to be oscillating with a major upswing 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 edit: 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.

http://en.wikipedia.org/wiki/Ponzi

To the Kübler-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.)

If you compare to my previous months (eventually I'll do graphs), you'll see a shift from Immobilization to anger (another 2%). No, people aren't skipping emotions, that's just the overall trend.

Onto the investment emotions. We're deep in desperation, with Florida trending into Panic as the front runner. Note that Florida, due to their multi-year inventories, high taxes and insurance, and low wages is pulling ahead of the pack in all of the worst ways. 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.
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.

I'm being a broken record. Why? Afford ability still isn't here. The baby boomers are going to consume less housing, starting in early 2008! Those are the reasons the 2008 selling season isn't getting traction. Look at the Wells Fargo Afford ability index. Most people are still priced out by historical measures. Its getting better, mostly by price drops but a little by income increases. When the recession hits incomes, afford ability will continue to improve quickly. You get one guess how that's done.

Interest rates? If they go up it will only drive down prices faster. Mortgage payments must drop back down to a historical fraction of income. Debt to income is at insane levels.

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.

This will end. We will recover. Some new industry will offer a new product we all feel we all should buy. (e.g., a la Ipods, HDTV, air travel, etc.) I'm excited about living in a country that invents multiple new industries during every recession. But which cities? Look at this list of airport traffic (indicator of economic strength). Notice that most cities keep a constant relative rank, but some have shot up, and a few are dropping off the international conscience while others have jumped onto the world stage.

http://en.wikipedia.org/wiki/World's_busiest_airports_by_passenger_traffic

Got popcorn?
Neil

Saturday, March 22, 2008

Real Estate Emotions March Update

Take a minute to sit back and realize what only the bloggers knew about declining home prices a month ago is now common knowledge. If you look at my last two posts, you'll see how the information about the bubble is really gaining traction. The amount of anger in the system seems to be oscillating. 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.

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.

http://en.wikipedia.org/wiki/Ponzi

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

Stability: 40% (Old homeowners and bubble bloggers)
Immobilization: 19% (Prices dropping? Can't be.)
Denial: 8% (No! Real estate only goes up!)
Anger: 13% (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.)

If you compare to my previous months (eventually I'll do graphs), you'll see a shift from Immobilization to anger (1%). No, people aren't skipping emotions, that's just the overall trend.

Onto the investment emotions. We're firmly in desperation, with Florida possibly leading into Panic. Note that Florida, due to their multi-year inventories, high taxes and insurance, and low wages is pulling ahead of the pack in the worst ways. 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 *****
9. Panic: Fall 2008 looks to be the start.
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.

I'm being a broken record. Why? Afford ability still isn't here. The baby boomers are going to consume less housing, starting in early 2008! Those are the reasons the 2008 selling season isn't getting traction. Look at the Wells Fargo Afford ability index. Most people are still priced out by historical measures. Its getting better, mostly by price drops but a little by income increases. When the recession hits incomes, afford ability will continue to improve quickly. You get one guess how that's done.

Interest rates? If they go up it will only drive down prices faster. Mortgage payments must drop back down to a historical fraction of income.

We'll finally start seeing price declines in the nicest areas. The bargains won't exist outside of the rust belt until 2010/2011. Some areas like Bakersfield and Riverside have seen amazing drops in January prices; its like a cancer. It will spread. Credit will tighten. Get your down payment in order and wait.

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.

This will end. We will recover. Some new industry will offer a new product we all feel we all should buy. (e.g., a la Ipods, HDTV, air travel, etc.) I'm excited about living in a country that invents multiple new industries during every recession. But which cities? Look at this list of airport traffic (indicator of economic strength). Notice that most cities keep a constant relative rank, but some have shot up, and a few are dropping off the international conscience while others have jumped onto the world stage.

http://en.wikipedia.org/wiki/World's_busiest_airports_by_passenger_traffic

Got popcorn?
Neil

Sunday, February 24, 2008

Real Estate Emotions February Update

What a difference a month makes! The change in emotions is huge, we're in desperation or so close no one will ever be able to say this couldn't have been the transition date. While I did indeed note less anger in January, its the exact opposite in February. Oh boy and the Ponzi victims upset that we're dissing their hero!

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.

The above quote is important. The faithful cannot understand their greed has ruined them. Instead they will point blame anywhere else. Let's help point it at the REIC where it belongs.
quote from:
http://en.wikipedia.org/wiki/Ponzi

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

Stability: 40% (Old homeowners and bubble bloggers)
Immobilization: 20% (Prices dropping? Can't be.)
Denial: 8% (No! Real estate only goes up!)
Anger: 12% (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.)

If you compare to my previous months (eventually I'll do graphs), you'll notice I pulled from Stability and Immobilization and populated the later emotions. Some of the people in Denial only need one discussion to flip into anger (and back); be careful what you say at work! I'm serious... there were nasty arguments this week.

Onto the investment emotions. We're transitioning into desperation. This is the same graph I updated in January; I put enough work into that timeline that it should hold for a while. Option-Arms are hitting their limits and helping drive the correction and emotion changes.

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 ***** edited from last month
9. Panic: Fall 2008 looks to be the start.
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.
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 still when I predict the greatest price drops (both nominal and real prices). The bottom is a long way off...

The option-ARM resets will be the motivator in 2008/2009. Not the planned resets, but the loans hitting their limits or when J6P realizes their overpriced McMansion isn't the road to riches they imagined. Recall, over 90% of Option-ARM borrowers only pay the minimum, so that negative amortization is going to flatten them when the payments reset.

Do read my article on inventory and sales. Ouch!

Basically, the 2008 selling season isn't getting traction. Why? Homes are not affordable. Look at the Wells Fargo Afford ability index. Most people are still priced out by historical measures. Its getting better, mostly by price drops but a little by income increases. Guess what, when the recession hits incomes, afford ability will continue to improve quickly. You get one guess how that's done. Interest rates? Going up will only drive down prices faster.

We'll finally start seeing price declines in the nicest areas. But wait. The bargains won't exist outside of the rust belt until 2010. Some areas like Bakersfield and Riverside have seen amazing drops in January prices; its like a cancer. It will spread. Credit will tighten. Get your down payment in order and wait.

Later update/Edit:
Home Prices Drop 8.9 Percent in 3 Months

Nothing the bears didn't already know, but if that doesn't give both the bankers and buyers pucker butt... Let's just say I'm not expecting anything but a slowing in the velocity of money.

Got popcorn?
Neil

Friday, January 25, 2008

Real Estate Emotions January Update

Honestly, I expected more of a transition in emotions through this month. We're still in fear. Somehow, despite all the stock market oscillations, the emotions are staying pretty stagnant. The one change is less anger. Is that just what I'm seeing? Or is it the cold weather?

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: 25% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 8% (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)

Still lots of anger out there... But less. Its as if we took a step back during the winter break?

The timeline stalled. No progress this month. I've slid the dates a bit, so I need to update the graph. Graph updated . But if you've been reading the blogs... Option-Arms are hitting their limits and thus the resets are really happening much earlier.

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 February/March 2008 edited from last month
9. Panic: Fall 2008 looks to be the start. I slid this a few months
10 Capitulation: Spring 2009 through the winter of 2009. Shifted... But still most of 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.
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 still when I predict the greatest price drops (both nominal and real prices). The bottom is a long way off...

The option-ARM resets will be the motivator in 2008/2009. Not the planned resets, but the loans hitting their limits. Recall, over 90% of Option-ARM borrowers only pay the minimum, so that negative amortization is going to flatten them when the payments reset.

Upcoming article: I'm creating graphs of housing inventory data from my own data and a few of the inventory blogs. It will cover national, LA, and DC inventory.

edit (Warning PDF):
Countrywide ranks markets
The above countrywide document is a must read. (Hattip Crispy&Cole on HBB) Is your area a Category 5 or 4? Miami and Phoenix are 5's. LA and DC are 4's. I think the color coding in the document tells it all...

2nd edit: For Countrywide Purchase Loans:

Soft Market Category 4-5 loans: Maximum financing will be reduced by 5%
Soft Market Category 1-3 loans: Maximum financing will be reduced by 5% if the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

For Countrywide Home Equity Loans:

Soft Market Category 5 loans: Maximum financing will be reduced by10%
Soft Market Category 4 loans: Maximum financing will be reduced by 5%
Soft Market Category 1-3 loans: Maximum financing will be reduced by 5% if
the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

Hattip: Crispy again at http://bakersfieldbubble.blogspot.com/

edit #3:
New homes sales at worst on record:
http://biz.yahoo.com/ap/080128/economy.html

Got popcorn?
Neil

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 Kübler-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?
Neil

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?
Neil

Wednesday, October 24, 2007

Real Estate Emotions October Update

I *really* wanted to see a transition to desperation. We seem so close to that emotional switch. However, all I've seen is an increase in fear. Fear to a fever pitch, but we aren't yet in desperation. This series will also continue with the Kubler-Ross grief cycle. From what I can see, we're getting a pile up in the anger category. There is quite a bit of venom out there against anyone who isn't REIC or a FB.

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

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 November/December 2007
9. Panic: Early mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation: Looking like the winter of 2008/2009
11 Despondency (start of market price bottom) Not before superbowl 2009. Possibly as late as 2010. Much more uncertainty here.
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)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

So for this month we have more anger and a stronger presence in fear. But desperation isn't far away. But if there is one thing I've learned while doing this series, real estate emotions move slower than you would think; all of my corrections have been to the right. Oh well. We're progressing.

As this winter progresses, I'll get a much better understanding of how will slide into capitulation next winter. Whatever you do, do not buy until we've been in capitulation for a while. This is a world wide event.

update 9:45pm:
This other blog puts us at somewhere between denial and fear:
http://drhousingbubble.blogspot.com/

I think the "anger in the air" puts us at a later state. However, when it doubt, delay purchase decisions during the downturn. There is a reason we have a market. Some think its time to sell, others think it is time to buy. There is no one correct answer. In fact, socioeconomic and geographical differences shift what state each region is in. For example, Seattle and Oregon are back in denial while Florida is up front in desperation. But there is no doubt that we're on the downswing globally. This isn't your father's housing downturn.

As to myself, I believe the risk of depression is constantly growing. (Man did I hate typing that.) Delaying the pain is only causing the seed corn to be expended prior to the planting. I cannot wait for the next rate cut and dive in the dollar.

Got popcorn?
Neil

Friday, September 21, 2007

Real Estate Emotions September Update

For the blogger party/dinner on September 30th (6pm), please RSVP on the previous thread.

I'm going to add to my real estate emotions column. I'm also going to start tracking where we are in the The Kübler-Ross grief cycle. I'm not going to say which Kübler-Ross emotion we're in, but rather the fraction of the population in each emotion. Most of the discussion skips three of the emotions, but they are important. Don't worry, I'm also keeping with my "investment related emotions," but as its going on a timeline that's been there for months. The only change is I've moved a chance of desperation starting earlier than what I predicted a month ago. I'm less confident of my further out emotions now. But I'll discuss that later.

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: 30% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 5% (This one must be discussed)
Bargaining: 2.5% (Ok, we can cut the price and lead the market)
Depression: 2.5% (We're going to lose our home. Just let them take it...)
Testing: 3%
Acceptance: 2% (Walk away, we're toast)

The dangerous ones are the ones in the "Anger stage." Notice on many blogs the counter is brutal? They are practically screaming real estate "facts" that have never been true. For example, I loved a comment "No market has ever dropped 40%." Oh... how about 90275 in the 1990's downturn? Hmmm... ?

Notice most people are in stability. If you bought a home pre-2003 and didn't HELOC, there isn't much reason to worry outside of flipper havens. Expect this group to shrink; but note that a majority of the people in stable group will remain stable. e.g., my folks live in a neighborhood of homes bought in the early 1970's. Unless medical problems crop up, they'll be living in a neighborhood of homes mostly bought in the early 1970's a decade from now.

The "Immobilization" group is interesting. Expect them to play quite a role during the spring selling season as they go from passive to active emotions. They'll be forced to transition through their emotions fast. But fast means an emotion a month; don't expect anything more. This is a slow process.

This feeds the overall investment emotions:

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 October/November 2007
9. Panic: Early mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation Could it be summer 2008 2009?
11 Despondency (start of market price bottom)
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)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

Basically I've lost confidence in my predictions post 2009. :( Why? As I look back over my bubble blogging history, I notice a trend that I'm always expecting things to happen faster than they do. But that doesn't change the overall conclusions:

1. Do not buy today. Heck, unless you can bargain well, do not buy in 2008 or 2009. When to start buying? Let's discuss Fall 2009. ;)
2. Preserve your cash. I'm not an investment expert, so pick your own strategy (goldbug, foreign currency/stocks, "sin stocks", etc.)
3. Sales will continue to slow (buyers doubt/calculation, tighter credit)
4. Prices are getting primed for a sharp drop world wide. Yes, world wide. There are no markets left where "its different here."
5. Whatever you do, don't listen to a salesperson on what to do.
6. Remember, real estate occurs in the margins. It doesn't take even 20% of the people panicking to tank a market. So don't worry about my low predictions. Its going to take 18 months to move a large fraction of the population over.

Got popcorn?
Neil