We’ve got a couple long-time real estate investors on this forum in that same denial. surveyor, counselor, and former poster Docteur come to mind. They think this downturn is either a blip before the next big rally, or their own “superior property” is immune to big drops, certain desireable coastal properties will increase in value in the next few years, in a decade prices will be higher than today, etc.
None of them remember that in the last downturn, coastal properties were in foreclosure and rented out, because there were no buyers.
Let me repeat: there were no buyers for prime real estate in Laguna Niguel and Pacific Palisades, big beautiful homes on or near the ocean. Some homes had to be boarded up to prevent theft. For many years they were rented, until the market turned around and buyers returned.
Now, this horrible downturn occured when median prices dropped 6% year over year, and when people still had to put down 10% – 20% on their home and more on rental property.
How much worse will this one be, when you have 0% down on rentals, 0% down on your own home, and median prices are already down 6% in the first year of the downturn. Just wait until the loans reset and we lose 50,000 construction jobs in San Diego alone. I don’t have time to give out all my theory on the job losses now, but it will be forthcoming in the next month.
So this downturn will make the last one look like a little child’s play. And even the old timers don’t get it!!!!!
How do we expect the average Jane Smith of Eastlake to get it?
The biggest disservice we all do is relying on the median, or the Case-Shiller index to show what is happening with prices. Even Rich says it’s the best we’ve got. I have to disagree with him. The best we’ve got is to stop using the median as a way to measure this market. Bob Casagrand stopped using the median in his monthly reports because they are utterly useless in telling us what is happening today. For historical analysis, they are fine though. But because they lag by 1-2 years, we simply cannot glean current market conditions from them.
Other measures might be better. For example, Rich’s $/sq ft seems like a better alternative. This is something he computes himself from MLS data. Jim Klinge has the active/pending ratio. Your “dropped out” measure could be another one. I like months inventory, because it shows the severity of downward pressure on prices and measure the supply/demand balance or imbalance.
Ultimately, we may find that you cannot distill real estate into one number.
People think this is a blip because they are not educated. I have never seen a book titled “Real Estate Cycles”, “The Cyclical Nature of Real Estate”, “Real Estate: Buy Low and Sell High”, because very few cities even have cycles, and those that do have long 10-12 year cycles, too long for the short attention span of today’s investors who want riches within days or at most 3 months.
Another problem is that the NAR has been the keeper of the data. Their data goes back to 1966. They have the inventory data, but why don’t they release it? Dataquick data goes back only to 1988.
The only reason I know what I do, is thanks to the internet and blogs, and the free exchange of information resulting therefrom. If I were relying on the mainstream media, I would be as clueless as everyone else.
Why do you think homes coming off the market is important? Is this a trend that is increasing, as sellers cannot get their dream price and give up? So in a down market the cancelled and withdrawn listings go up? Maybe you could track that statistic. Again, like months supply it wouldn’t tell us one single number.
There is also that emotional component as mentioned in the thread “anger”. People are defensive when you say their home is worth less.
Last, it goes against people’s experience. Many extrapolate the present into the future. Since home prices have gone up for 5 years, people cannot imagine it can go down. It reminds me of being in college and dead broke, and not being able to imagine ever having money.
Other people remember the last downturn, but correctly realize that prices at this peak ended up higher than the last peak, so they think this too is a blip and eventually prices will end up higher than today. They fail to understand or remember that real estate cycles last 12 years.
I think any listing presentation could include a primer on real estate cycles. People need to understand that housing prices go up for 6 years, down for 6 years. Just as night follows day, prices rise and fall. Do you think people would accept and understand that? Have you shown them any of Rich’s graphs?
Now I better stop writing before sduuuude chides me for writing too much. I thought you all enjoyed my little breather in November, but hoping you are even more glad that I am BACK.
