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Home Prices on Upswing: Momentum and Psychology
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2009 Aug 29, 7:09am 1,884 views 3 comments
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"ALREADY" rising in some areas: my comments acknowledge this. Please read again. But hey, thanks for raising your captious concern.
"Housing prices may, or may not, recover for many years" is simply an acknowledgment that a buyer must embrace real economic possibility. You see, too often people make up their mind as the "trend is their friend" without having enough sense/balls to acknowledge that this is a complex market and therefore it may move in the opposite direction that I think it will--yes even despite statistical swings. That's all I'm pointing out, even from my own perspective. Obviously you have bypassed this consideration: "ALREADY." Rising and recovering are two separate things.
There is a difference between short term, seasonal, and nominal vs. long term. Please put your "ALREADY" into that context. You have heard of such distinctions, haven't you? Again, rising and recovering are two separate things.
You think we are back to "normal balances" in the market? Oh really. Please tell me if having so many mortgages underwater (over 50 percent by 2011 forecast by D.Bank) exemplifies a "normal balance." There is a thing called "shadow inventory."Etc. So many factors you fail to address.
How will "ALREADY" fix the forthcoming supply of homes, as well as those folks who are potentially so underwater that it makes more sense to walk away?
The only way for your "ALREADY" to be significant for a recovery is to believe that it signals a strong enough rebound to dramatically increase home prices to rescue the situation. Hitting a bottom or having a slight rise in no way solves the housing problem.
Thus I call BS on your "ALREADY" and "normal balances" until you can prove otherwise.
Do rising prices entail recovery? NO.
a rapidly rising RE market operates by capitalizing on fear: fear that investor won't make as much as s/he could if don't buy NOW, fear someone else will get it if don't offer over asking NOW, fear that "the best" house will not be available NOW.
Who benefited from that?
1. RE agents
2. Mortgage brokers
3. Wall Street mortgage brokers whose compensation is tied to how much "inventory" they sell - who cares what it is?
4. County Tax Assessors - why over budget? because they budgeted based on bubble revenue
Oh yeah - why do the newspapers grab and push onto any remotely positive news?
Because THEY benefited mightily with a rapidly increasing RE market - massive ad dollars came in with all those full page color ads - and they are owned by publicly traded companies whose motive is quarterly profit improvement... so I personally only believe Case-Schiller data and the like.
The rest have too much of a vested interest in trying to stabilize or re-grow the housing market. For the benefit of generations to come, in every market, prices should drop to historical norms. That means 10-30% more drop should come, particularly with the 5 year re-sets coming next year.
Also, as Disraeli apparently said: "there are three kinds of lies: lies, damned lies, and statistics"
I realize that this was published a few days ago. Nevertheless, it is still being headlined on CNN/Money.
http://money.cnn.com/2009/08/25/real_estate/June_CaseShiller/index.htm?postversion=2009082514
Does/should momentum play such a significant role in an efficient market? I think it does, but will do so to a lesser degree in the near future. Momentum comprises psychology, and the psychology has changed, and will change even more.
Real estate agents and much of the media, generally ignorant of economic principles, have influenced--albeit improperly--home valuations and market trajectory for quite some time. These players will be met with more skepticism.
Buying real estate should entail more of a "value" approach rather than one of "growth." People will not soon forget the wrong upside prognostications. The new market psychology must now acknowledge the proposition that I may lose all of my down payment and then some, rather than "buy before you get priced out forever." Housing prices may, or may not, recover for many years. Moreover, perhaps a prospective buyer might suddenly be confronted with the most bizarre question: what is this house (really) worth? (This precedes the almost equally bizarre question: how much house can I (really) afford?)
There remains an outlook by way of recent price upswings: we are soon to return the days of market mania. This, however, will never happen. The lending recipe that skimped on the ingredient of risk and cooked up a disaster will never be followed again.
The remnant of sanguine folks looking for even a quick but modest turnaround, many of whom are underwater on their mortgages or are eager beavers to buy before the next skyrocket, will be disabused of their irrational expectations. I'm not rooting for this, but I hope that the forthcoming double whammy of housing supply slams real estate's power of positive thinking.
#housing