I am most concerned about buyer psychology. As Rich states, I am in agreement that the level of denial out there is amazing. I wonder if the Fed actually has something as too a reasonable goal out there… If they keep interest rates low they keep the economy propped up (even with the damage to inflation, etc.), but as far as the real estate market goes, it’s all about employment and interest rates. If they can keep the numbers in check, the seller / buyer psychology won’t take over too harshly.
This is why we don’t have too many rental conversions or sales right now. The buyers are in denial, and the fundamentals are getting hammered, with a long, long painful way to go. Consumer confidence is so low, but imagine if San Diego starts resembling Detroit… Wow will the landscape start changing.
The news media which was totally on the side of the advertisers (Realtors), has now shifted to the bear side, but still downplays the forecasting of many real bears – the recovery is always around the corner, now they are talking about the end of 08, till 09. Of course many smart folks (I hope I am one of them!) think that we could have years of price declines, all taking the economy along for a ride. I don’t think the panicking will be until late 08, and if interest rates aren’t at least 1% lower by this time next year, we could have a calamity on our hands.
Who is holding the bag? Ultimately the homeowners and the people who hold the mortgages (are these the hedgefunds?) – because the banks don’t seem to own the paper anymore.
When we are at 1998 prices, we will have some small measure of normalcy in the market, but now I forecast that it will be sub 1998 pricing.
We haven’t seen a tumble in actual prices which comes close to the rate of increase up till 2005. I think that this is the mother of all bubbles, and as homes are VERY VERY illiquid, it will take a long time for the prices to come down, sort of like what happened in Japan. But if the economy keeps pace (It won’t), and interest rates go down (for every .25 percent the fed lowers the rate, the banks won’t give back .1 percent to the consumer as the risk spread will just profit the bank – to protect their own previous and current portfolio downsides) we could expect sellers to hold their positions.
If the economy starts to tank – remember folks – this is the U.S. and we have been fed a diet of ‘capitalism is best, socialism is horrible, taxes should be cut’, rampant capitalism. The execs and shareholders will easily start firing people to protect their bottom lines and executive compensation. When profits start dipping because of the housing market and the paper losses, the people will get fired, the economy will go into a bigger tailspin, and whatever the Fed does will only be a salve for the financial institutions, not the middle/lower class of taxpayers.
Did I answer the question??? LOL… About on track, will depend on the mob psychology, employment and wage movement, and of course interest rates.
