Hey RO,
Unless you came out with a prediction using your model 6 to 10 ten years ago on how high real estate prices would go…..your current prediction is useless. You want to use logic, math, and fundenmentals to predict the downside when all that took a back seat on the upside. Market psychology and easy credit caused the real estate market to overshoot on the upside, and market psychology and tight credit will cause the real estate market to undershoot on the downside.
That’s my prediction, and it’s just about as good as yours, because your so-called model didn’t call the upside, and I don’t think anyone called the upside because earnings, affortablity, and logic stopped existing for at least 3 to 4 years…..
Nasdaq went to 5000 without any fundementals, and it went down to 1100 without any fundmentals. It finally settled at around 2500 because fundementals took over. Let me ask you something. Had any american market index ever dropped almost 80%? Nope, why…because a market index had never jumped so high in such a short period, and fundementals like PE, cash, margins, and inventory turns stop being taken into account.
That is why it is special, and your predictions are pretty much a guess backed with by normal market historical stats and data points. That’s pretty much useless until the undershoot occurs. It might end up going down only 20% from the peak when it settles, but it will go lower percentage wise if only for a short while. That is my guess, and that is exactly what it is… a guess. Too bad you can’t add market psychology as a mathematical constant in your equations. On the way up, part of the market psychology was that people had to buy this month because pricing would go up by next month. The reverse will not take place. Market Psychology will cause people to think that they can hold off a purchase (if they qualify for a mortgage) this month because next month prices will be lower……
In conclusion, your prediction is a useless as anyone’s else. Mine included. Only a look back after the correction has occured will the percentage of the downside be known. Go ahead and use all the historical stat models you wish. I am sticking to
“it’s special this time”. Only time will tell who was right.
