It’s been kind of interesting to watch the trends in sentiment. Back in 2002 when I was watching the market pass the point of parity with the 1990 peak nobody contemplated the idea that we could go through another downturn. That’s when the “new paradigm” came out.

As 2003 progressed and prices really started passing all relationship to regional wage trends the lone voices were joined by the occasional skeptic. 2004 rolled around and that’s when Rich’s blog started – he had been watching this mess for a while and got to the point where he had to vent somewhere.

Rich’s blog gained steam in 2005 but sentiment was still divided. By the time 2006 rolled around the bears outnumbered the bulls, and by early 2007 most of the bulls left town.

Now it looks to be reversing. Those who came late and/or were conflicted seem to be getting ready to leave early. Those who started out back in 2004 with the anticipation that pricing would return to or overcorrect past the long term trendline seem to be holding their ground.

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Regardless of where you’re coming from, there’s no point in speculating where it should be. By definition, what should be….isn’t. The only thing that really matters is “what is”. And right now, “what is” consists of an oversupply of inventory with lots more “must-sell” sellers on the way, a weakening macro-economic base for the region and rapidly decreasing price strucures – starting from the outside and working its way in.

The high end is still subject to price compression. That won’t really start to happen in earnest until the second wave of ARM resets comes to town, which is still more than a year away.

Bottom line – watch the ratio of standing inventory vs. rate of sales for your target market and ignore the anecdotes about one or two transactions generating multiple offers. That, and recognize that the best deals probably won’t involve your dream house. That’s because the sucker who bought it at the peak is too emotionally involved to let it go at a loss of any type.