Fire will help market

[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

[Anonymous]

“Blackbox,
Would you not agree that the down turn is taking longer then most thought, and people will eventually start to tire of waiting?”

My take on this as a renter wanting into the housing market is: People aren’t stupid, they know that this bubble was the biggest in history and house prices will crash down to the ground. It’s a knowledge of history and gut instinct in my case. How anyone could have been stupid enough to buy into a market of overly priced homes that were so not worth it because they believed that houses would continually go up is beyond me. My 10 year old is not that stupid… I do feel for those who got sucked into this mess by greedy real estate agents and loan officers, but come one people, God gave us a brain for a reason. Some of those people were just as greedy and the ones who weren’t are paying because they lacked common sense.

I think San Diego right now is not looking that desirable, people will remember this fire and along with the declining market, prices will continue to plummet in San Diego, just like in most parts of the country for awhile. People like me are waiting for a great deal, and we will continue to wait it out. Like someone said, it’s psychology and the psychology of this market now is you wait until prices hit rock bottom unless you want to miss out on a great deal. People do NOT want to miss out on a great deal.

[Anonymous]

“Blackbox,
Would you not agree that the down turn is taking longer then most thought, and people will eventually start to tire of waiting?”

My take on this as a renter wanting into the housing market is: People aren’t stupid, they know that this bubble was the biggest in history and house prices will crash down to the ground. It’s a knowledge of history and gut instinct in my case. How anyone could have been stupid enough to buy into a market of overly priced homes that were so not worth it because they believed that houses would continually go up is beyond me. My 10 year old is not that stupid… I do feel for those who got sucked into this mess by greedy real estate agents and loan officers, but come one people, God gave us a brain for a reason. Some of those people were just as greedy and the ones who weren’t are paying because they lacked common sense.

I think San Diego right now is not looking that desirable, people will remember this fire and along with the declining market, prices will continue to plummet in San Diego, just like in most parts of the country for awhile. People like me are waiting for a great deal, and we will continue to wait it out. Like someone said, it’s psychology and the psychology of this market now is you wait until prices hit rock bottom unless you want to miss out on a great deal. People do NOT want to miss out on a great deal.

[Anonymous]

“Blackbox,
Would you not agree that the down turn is taking longer then most thought, and people will eventually start to tire of waiting?”

My take on this as a renter wanting into the housing market is: People aren’t stupid, they know that this bubble was the biggest in history and house prices will crash down to the ground. It’s a knowledge of history and gut instinct in my case. How anyone could have been stupid enough to buy into a market of overly priced homes that were so not worth it because they believed that houses would continually go up is beyond me. My 10 year old is not that stupid… I do feel for those who got sucked into this mess by greedy real estate agents and loan officers, but come one people, God gave us a brain for a reason. Some of those people were just as greedy and the ones who weren’t are paying because they lacked common sense.

I think San Diego right now is not looking that desirable, people will remember this fire and along with the declining market, prices will continue to plummet in San Diego, just like in most parts of the country for awhile. People like me are waiting for a great deal, and we will continue to wait it out. Like someone said, it’s psychology and the psychology of this market now is you wait until prices hit rock bottom unless you want to miss out on a great deal. People do NOT want to miss out on a great deal.

[j]

More people will loose sleep over the NOD they received in the mail this month than because their house burned down.

If you are behind on your payments and your house burns down are you more likely to just walk away?

[j]

More people will loose sleep over the NOD they received in the mail this month than because their house burned down.

If you are behind on your payments and your house burns down are you more likely to just walk away?

[j]

More people will loose sleep over the NOD they received in the mail this month than because their house burned down.

If you are behind on your payments and your house burns down are you more likely to just walk away?

[Raybyrnes]

Frinds at Washingint Mutual says they ahve people who are just walking in and dopping off the keys. Not even going to try and work out of this.

[Raybyrnes]

Frinds at Washingint Mutual says they ahve people who are just walking in and dopping off the keys. Not even going to try and work out of this.

[Raybyrnes]

Frinds at Washingint Mutual says they ahve people who are just walking in and dopping off the keys. Not even going to try and work out of this.

[kev374]

yes, but on the other side of the equation are ARM resets that are going to result in 2+ million foreclosures, California being ground zero for that so I don’t think 1000 homes or 80,000 restructured loans is doing to make any difference at all. Couple that with $100 oil and increasing inflation due to the drop in the dollar and things are not looking too good.

[kev374]

yes, but on the other side of the equation are ARM resets that are going to result in 2+ million foreclosures, California being ground zero for that so I don’t think 1000 homes or 80,000 restructured loans is doing to make any difference at all. Couple that with $100 oil and increasing inflation due to the drop in the dollar and things are not looking too good.

[kev374]

yes, but on the other side of the equation are ARM resets that are going to result in 2+ million foreclosures, California being ground zero for that so I don’t think 1000 homes or 80,000 restructured loans is doing to make any difference at all. Couple that with $100 oil and increasing inflation due to the drop in the dollar and things are not looking too good.

[sddreaming]

Okay dingo, I agree with #1. There will be a stimulus to the construction market this coming year. But I guess that’s as far as I agree.

The rent market is tight, however I already saw somewhere a restriction in rent rate increases. Rents are not supposed to be increased over the next 6 months to a rate higher than 30 days before the fire. Now I have to look and see where I saw that.

At this point I am thinking that sellers in the fire evacuation areas will be more likely to lower their selling prices. After all why would you hold on to property that is in a fire evacuation area?

[sddreaming]

Okay dingo, I agree with #1. There will be a stimulus to the construction market this coming year. But I guess that’s as far as I agree.

The rent market is tight, however I already saw somewhere a restriction in rent rate increases. Rents are not supposed to be increased over the next 6 months to a rate higher than 30 days before the fire. Now I have to look and see where I saw that.

At this point I am thinking that sellers in the fire evacuation areas will be more likely to lower their selling prices. After all why would you hold on to property that is in a fire evacuation area?

[Author]

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