Fire will help market

[Ex-SD]

dingo: It takes a looooooong time to rebuild in SD after a fire due to the ridiculous bureaucratic pile of paperwork & approvals that must first be dealt with. Also, prior to the fires, San Diego’s vacancy rate for rentals had been rising (according to a story in the U.T. several months ago). Prices didn’t go to the heights that they achieved overnight and they won’t come down overnight. It will take time and anyone who buys in SoCal within the next four years (at the earliest) will have paid too much for their home. The bottom is a long way off in relation to time and $$$$$$. There are too many forces working against sellers to prop up the prices and all the signs point to a return of the prices that we saw in 1998-1999.

[34f3f3f]

I don’t see how anyone can predict with any real certainty exactly what effect the fire will have on the local economy and home prices. Only time will tell. That building will take place is a no brainer, but in what volumes is less certain. Presumably insurance claims need to be processed, and that’s assuming that either insurance or Federal aid is in place for everyone. However, my overall take (and this is a personal opinion) is that San Diego is not a particularly attractive place to live at the moment (think New Orleans), and that is almost sure to suppress prices.

As to whether prices have been declining at a slower rate than expected, what was the expected rate (%) of decline, and how much has this differed from reality? One is reminded of a Youtube post on the subject of housing bubbles that compares them to the slow release of air from a tightly pinched balloon. As they say, never expected the expected … but the odds seem heavily in favor of a continued correction. Even the industry heavy weights who have devoted considerable efforts to propping up prices (see the “Schiff-Crash Proof” post), are now conceding the inevitable.

I feel sorry for people who have invested hope in home equity as a means to a more secure retirement, but real sustainable wealth needs to be created out of something concrete (excuse the pun), and not air which is the main component of bubbles. So nothing has been lost, because there were no real gains in the first place (unless you sold at the peak and moved to Belize).

[34f3f3f]

I don’t see how anyone can predict with any real certainty exactly what effect the fire will have on the local economy and home prices. Only time will tell. That building will take place is a no brainer, but in what volumes is less certain. Presumably insurance claims need to be processed, and that’s assuming that either insurance or Federal aid is in place for everyone. However, my overall take (and this is a personal opinion) is that San Diego is not a particularly attractive place to live at the moment (think New Orleans), and that is almost sure to suppress prices.

As to whether prices have been declining at a slower rate than expected, what was the expected rate (%) of decline, and how much has this differed from reality? One is reminded of a Youtube post on the subject of housing bubbles that compares them to the slow release of air from a tightly pinched balloon. As they say, never expected the expected … but the odds seem heavily in favor of a continued correction. Even the industry heavy weights who have devoted considerable efforts to propping up prices (see the “Schiff-Crash Proof” post), are now conceding the inevitable.

I feel sorry for people who have invested hope in home equity as a means to a more secure retirement, but real sustainable wealth needs to be created out of something concrete (excuse the pun), and not air which is the main component of bubbles. So nothing has been lost, because there were no real gains in the first place (unless you sold at the peak and moved to Belize).

[34f3f3f]

I don’t see how anyone can predict with any real certainty exactly what effect the fire will have on the local economy and home prices. Only time will tell. That building will take place is a no brainer, but in what volumes is less certain. Presumably insurance claims need to be processed, and that’s assuming that either insurance or Federal aid is in place for everyone. However, my overall take (and this is a personal opinion) is that San Diego is not a particularly attractive place to live at the moment (think New Orleans), and that is almost sure to suppress prices.

As to whether prices have been declining at a slower rate than expected, what was the expected rate (%) of decline, and how much has this differed from reality? One is reminded of a Youtube post on the subject of housing bubbles that compares them to the slow release of air from a tightly pinched balloon. As they say, never expected the expected … but the odds seem heavily in favor of a continued correction. Even the industry heavy weights who have devoted considerable efforts to propping up prices (see the “Schiff-Crash Proof” post), are now conceding the inevitable.

I feel sorry for people who have invested hope in home equity as a means to a more secure retirement, but real sustainable wealth needs to be created out of something concrete (excuse the pun), and not air which is the main component of bubbles. So nothing has been lost, because there were no real gains in the first place (unless you sold at the peak and moved to Belize).

[fencesitter123]

Interesting to see yet another increase in high end market:

1.17748 Old Winery Ct
Price Increased: 10/27/2007 from $2,799,000-$2,999,000 to $3,200,000-$3,400,000
Price Reduced: 08/10/2007 from $3,200,000-$3,400,000 to $2,799,000-$2,999,000

2.14360 Ciera Ct
Price Increased: 10/24/2007 from $2,595,000 to $2,895,000
Price Reduced: 09/01/2007 from $2,895,000 to $2,595,000
Both in Poway in areas effected by fires.

300-500 K increases…….wow

[fencesitter123]

Interesting to see yet another increase in high end market:

1.17748 Old Winery Ct
Price Increased: 10/27/2007 from $2,799,000-$2,999,000 to $3,200,000-$3,400,000
Price Reduced: 08/10/2007 from $3,200,000-$3,400,000 to $2,799,000-$2,999,000

2.14360 Ciera Ct
Price Increased: 10/24/2007 from $2,595,000 to $2,895,000
Price Reduced: 09/01/2007 from $2,895,000 to $2,595,000
Both in Poway in areas effected by fires.

300-500 K increases…….wow

[fencesitter123]

Interesting to see yet another increase in high end market:

1.17748 Old Winery Ct
Price Increased: 10/27/2007 from $2,799,000-$2,999,000 to $3,200,000-$3,400,000
Price Reduced: 08/10/2007 from $3,200,000-$3,400,000 to $2,799,000-$2,999,000

2.14360 Ciera Ct
Price Increased: 10/24/2007 from $2,595,000 to $2,895,000
Price Reduced: 09/01/2007 from $2,895,000 to $2,595,000
Both in Poway in areas effected by fires.

300-500 K increases…….wow

[VoZangre]

All in all…

ANYONE who pays THAT much to live in POWay is…

(fill in the blank)

[VoZangre]

All in all…

ANYONE who pays THAT much to live in POWay is…

(fill in the blank)

[VoZangre]

All in all…

ANYONE who pays THAT much to live in POWay is…

(fill in the blank)

[Anonymous]

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?

[Anonymous]

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?

[Anonymous]

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?

[4plexowner]

Jmcgarry – your post caused me to pull “Elliott Wave Principle” by Frost & Prechter off the shelf – it had been awhile – thanks for the nudge

I was fuzzy on the concept of “5 legs up but only 3 legs down” so I went in search of an answer.

Here is way more than most people want to know about Elliott Wave theory.

This is Prechter talking about why the 5–3 pattern makes sense from a “mother nature” perspective. In a nutshell he is saying that you have to have 5 waves up and only 3 waves down for there to be overall progress made.

“Why 5-3? (pg 26)

Elliott himself never speculated on why the market’s essential form is five waves to progress and three waves to regress. He simply noted that that was what was happening. Does the essential form have to be five waves and three waves? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow for fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves (of unqualified size) in both directions does not allow progress. To progress in one direction despite periods of regress, movements in the main trend must be at least five waves, simply to cover more ground than the three waves and still contain fluctuation. While there could be more waves than that, the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path.”

~

EW theory provides some clear rules about the five uplegs. For example, leg 3 is always bigger in magnitude than leg 1. Unfortunately there aren’t any clear rules about the size or duration of the 3 downlegs.

~

If I understand correctly, jmcgarry, you are implying that we are at the end of downleg number one and therefore due for wave two. EW theory suggests that this wave two could be a mini-rally or just sideways movement as the market marks time.

I think it is too early for wave two. There is a lull in the ARM reset rate that starts in late 2008 (Credit Suisse ARM Reset chart: http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html). I am expecting the RE shills and cheerleaders to point to this data and call bottom. With an election cycle going on there may be enough strength in the markets to support the idea of a bottom. Anyway, I’m not going to be surprised by a mini-rally in late 2008/early 2009 – in EW terms, I think this rally will be wave two of the overall corrective cycle.

In mid to late 2009 election euphoria will have worn off and the Option ARM resets will be on everyone’s radar screen. I expect wave three, the final downleg of the correction, to be caused by these Option ARMs blowing up. They will do so through the end of 2011.

Let’s say there is a six month delay between an ARM reset and getting a property onto the MLS (I think it is taking longer than that now?). That takes us into mid 2012 before distressed inventory stops coming onto the market from toxic mortgages (assuming there aren’t any more in the pipeline).

By this reasoning I believe the earliest that wave three will bottom is mid 2012.

~

As I said before, EW theory doesn’t help much for predicting the magnitude of a correction. For guidance in this area I look to prior financial bubbles and what happened as a result. One of the consistent things about financial bubbles is that they are always fully retraced. Let’s take that as a given for now and move on.

The next question becomes: “When did the bubble start?”

We have discussed this question before in numerous forums. I say 1998 and those are the kinds of prices I will be looking for at the bottom. Other people pick different dates.

~

I’ve rambled on enough – thanks jmcgarry – I hadn’t considered our RE correction from EW perspective before you posted

[4plexowner]

Jmcgarry – your post caused me to pull “Elliott Wave Principle” by Frost & Prechter off the shelf – it had been awhile – thanks for the nudge

I was fuzzy on the concept of “5 legs up but only 3 legs down” so I went in search of an answer.

Here is way more than most people want to know about Elliott Wave theory.

This is Prechter talking about why the 5–3 pattern makes sense from a “mother nature” perspective. In a nutshell he is saying that you have to have 5 waves up and only 3 waves down for there to be overall progress made.

“Why 5-3? (pg 26)

Elliott himself never speculated on why the market’s essential form is five waves to progress and three waves to regress. He simply noted that that was what was happening. Does the essential form have to be five waves and three waves? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow for fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves (of unqualified size) in both directions does not allow progress. To progress in one direction despite periods of regress, movements in the main trend must be at least five waves, simply to cover more ground than the three waves and still contain fluctuation. While there could be more waves than that, the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path.”

~

EW theory provides some clear rules about the five uplegs. For example, leg 3 is always bigger in magnitude than leg 1. Unfortunately there aren’t any clear rules about the size or duration of the 3 downlegs.

~

If I understand correctly, jmcgarry, you are implying that we are at the end of downleg number one and therefore due for wave two. EW theory suggests that this wave two could be a mini-rally or just sideways movement as the market marks time.

I think it is too early for wave two. There is a lull in the ARM reset rate that starts in late 2008 (Credit Suisse ARM Reset chart: http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html). I am expecting the RE shills and cheerleaders to point to this data and call bottom. With an election cycle going on there may be enough strength in the markets to support the idea of a bottom. Anyway, I’m not going to be surprised by a mini-rally in late 2008/early 2009 – in EW terms, I think this rally will be wave two of the overall corrective cycle.

In mid to late 2009 election euphoria will have worn off and the Option ARM resets will be on everyone’s radar screen. I expect wave three, the final downleg of the correction, to be caused by these Option ARMs blowing up. They will do so through the end of 2011.

Let’s say there is a six month delay between an ARM reset and getting a property onto the MLS (I think it is taking longer than that now?). That takes us into mid 2012 before distressed inventory stops coming onto the market from toxic mortgages (assuming there aren’t any more in the pipeline).

By this reasoning I believe the earliest that wave three will bottom is mid 2012.

~

As I said before, EW theory doesn’t help much for predicting the magnitude of a correction. For guidance in this area I look to prior financial bubbles and what happened as a result. One of the consistent things about financial bubbles is that they are always fully retraced. Let’s take that as a given for now and move on.

The next question becomes: “When did the bubble start?”

We have discussed this question before in numerous forums. I say 1998 and those are the kinds of prices I will be looking for at the bottom. Other people pick different dates.

~

I’ve rambled on enough – thanks jmcgarry – I hadn’t considered our RE correction from EW perspective before you posted

[Author]

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