I don’t know about y’all, but I’m getting bored of the same old stuff about having to explain why prices revert to the mean. They just do! No asset bubble in history has avoided this pain.
My points in regard to asset correction are clear to me, were presented over the past few months, and I am ready to move on.
My most pressing interest is in allocating my financial assets during the real estate downturn and ensuing recession. Housing has become only a secondary interest.
So if I no longer participate in answering objections made to “prices cannot revert to the mean because of demand”, or “Prices cannot revert to the mean because they cannot possibly go under replacement costs”, or “prices cannot revert to the mean because that would mean large unemployment and practically a depression”… I think I’ve heard it all. What all these irrational responses have in common is “It’s different this time. SD housing prices will be the first asset bubble in history to defy correction to the mean because things are different here”. Who really believes this?
There are some homeowners who don’t want to accept it, and I don’t blame you. But you’ve made your choice. You came here to get educated, and decided to ride it out. Now you are upset with the possibility of losing half your equity. Well, you had all the information that we sellers had.
I can’t keep coming here to debate you, because I am wasting my time. All bubbles correct to the mean. Read about it sometime.
Any discussion of dollar vs percentages, demand vs profit margins and replacement costs, vacancies decreasing or not, has nothing to do with the fundamentals: housing has to revert to the basic value where HOUSE PRICE = 8 * ANNUAL RENT.
Study Irrational Exuberance, Manias by Kindleberger.
Just read my thread where I posted Graham’s study, where NOT ONE ASSET BUBBLE studied escaped Correction to the Mean, to the fundamental valuation. For housing, it is wages. Rents are a proxy for wages. So even if housing prices are half of replacement cost (because replacement cost is made up of LUDICROUS land valuations), they will go there.
I’m done explaining this stuff. Some people just don’t get it or don’t want to get it. A good investor prepares for the future, and does not live in dreams and hopes. My goal is being a good investor, and that’s why I study everything I can get my hands on. That’s why I sold my house. That’s why I don’t care if it goes down 75%.
If you are bothered by a 50% loss, then sell. Stop arguing with history, with corrections to the mean. They happen regardless of how many times you want to argue about it, about why it cannot happen to your neighborhood. Yes, even Carmel Valley can drop in half. Only time will tell which neighborhoods are affected most. For now, Rich’s data is only about the price/income ratio for all housing for the entire County, so we don’t have the dataset to know what the mean is for each neighborhood. Unfortunately…
