Fire marks end of first wave down:
There exists a school of thought regarding the behavior of markets that holds as one of its tenets the idea that valuation is driven by public sentiment, which is believed to be in continual oscillation between extremes of optimism and pessimism. Another tenant of this school of thought is that the market price response to such public sentiment can be fit to a specific fractal pattern that can be envisioned as a set of line segments, connected in tip to tail fashion. It is thought that rising market valuation fits a 5 part fractal pattern consisting of 3 advances separated by two declines, whereas falling market valuation can be fit to two steps down separated by an advance.
I honestly don’t know if this kind of curve actually represents some key insight into market behavior or if it’s just a way to formalize your guesswork.
Nonetheless, in light of the foregoing, the San Diego housing market seems to be poised at the end of the first leg down following a secular reversal that was driven by fundamental economic factors limiting affordability. However, at this point, market sentiment has yet to achieve a full reversal. Buyers and sellers are paralyzed by uncertainty. An insufficient number of market participants are sufficiently convinced that what we’re experiencing is a true reversal, as opposed to a short-term correction leading to another wave up. Perhaps this impasse will only be breached by a correction where market sentiment retraces a material percentage of its former optimism.
Notwithstanding the difficulty of prediction with respect to the future (to paraphrase Bohr), perhaps there’s something to the notion that markets don’t go up (or down) in a straight line. Intuitively, it does seem that market participants need to experience more than one convincing reversal in market direction in order to fully embrace a change in the secular trend.
Is it possible that the demand (or the perceived demand) for housing resulting from the fires will, perversely, provide a corrective wave of pricing optimism, that, when ultimately reversed, will act to break the stalemate between buyers and sellers?
