This is really interesting to see the bear market play itself out in real-time! I think it shows the nature of man to think more closely about his recent events rather than the consistancy of repeated events over a longer time span. I guess because it’s shelter, our home and the biggest investment most people ever make in their lives, the subject of real estate is charged with emotion! This emotion causes people to make decisions that lack logic of a most fundemental nature. I’ve bought and sold many homes since 1993, I have become very dispassionate about homes. It’s money, plain and simple to me. A home is where you make it. The house is a pile of sticks on a chunk of dirt. In the final analysis it will obey the economic laws of the market.
A little story:
I bought real estate in the early 1990’s and lived it first-hand. Talked to many people, read the letters to editors in the news papers,(There was no public Internet then), went to seminars, etc…
I had just started to make money in 1987 and the RE market was soaring in CA. I wanted “in” badly, but didnt have the down payment.(Zero down was a deal you got from a distressed seller) Then the crash started in 1990. “Oh goody” I thought.”Now it will come down to where I can buy in.” By 1993 the price was there and so was my down payment. I pulled the trigger. Thinking that it had been down for at least 3 years and things in the economy were slightly improving and the FED had kept the interest rate low for a couple of years. All signs that the market should improve. Everybody was saying almost exactly what I am hearing now. They were not saying these things by 1995!! The market sat on the bottom for 3 more years. 2 bedroom condos ON the beach in Newport Beach were going for $95K and they’re were not many buyers. I was tempted, but couldnt really buy because I was stuck in my previous purchase. Yes, it improved, but it took until about 1997 before I could sell and break-even due to transactional costs, etc…
I guess the point I’m trying to make is that this down cycle from 1990 to 1997 was not nearly as severe as what we are seeing now and it took a solid 7 years to START to return. Prices fell at most around 25% from their peak, foreclosures were about 1/3 of what they are now and unemployment peaked at about 7%.
For anyone who thinks this market will bottom and then start to turn fast, I dont think there’s much empirical proof for that whatsoever in the RE market and this down-turn is worse than anything we’ve experienced since the Great Depression. If you look at the fundementals now and the direction they’re headed, we’re in for a real battle here. The basic history of market cycles is that the bigger the boom, the bigger the bust. And I see no reason to think this is some exception to that rule.
I bought and sold 5 houses from 1997 to 2000. This gave me basically, financial freedom. The RE market was a harsh teacher, but paid well once the lesson was learned. I thought for sure 2001 on would be a bust and it did start out that way, but the Fed and a huge pool of international money kept the rise in prices alive.Getting a mortgage became a joke! I got back in in 2003. Got back out in 2007. Being gun shy has served me well. I really think if you look at the fundementals in 2001, we should have corrected in the RE market. Well, we should have and now we are, only now we have to make up for the 2001 to 2006 and maybe 2001 to 1997.
I apologize for this extremely long-winded story, but I’m old enough now to tell these things and though that maybe so many on this site may not have any experience in a down cycle RE market.
All I’m saying is be careful out there. There’s a real good chance it’s gonna go lower and last longer.
