Horrible Journalism “Bubble Sitting” by cnn.com

[an]

There’s no way I can give you data of the last bounce in 1994 for all 3 of your indicator. However, if you take a look at Rich graph in the bubble primer, you see that 1994 is well under the longer term average, so my guess is the HAI is pretty good at that point. Also, do you noticed some of the realtor who are ahead of the curve call the top of this cycle at least 1 year before it show up in the OFHEO median? So can it also apply on the way up from the bottom? Could it be possible that they might call the bottom 1 year before it turn positive for the first time? Which is 1994 by the way. The HAI can be shown with graph from Rich but the realtor sentiment is only my guess since I did not talk to any realtor back then. I don’t think I can find inventory data back then since the data is not widely available on the Internet like it is now.

I also showed that an event like 9/11 can change a cycle. W/out 9/11, there were on their way back down. But if you’re still strongly believe you can time the bottom and top, good luck to you. The school of life has very expensive, make sure you’re prepare to pay. I sure paid my share.

[Anonymous]

It is unrealistic to time the absolute bottom, but in general I agree with Poway that it won’t be difficult to buy in near the bottom. To be safe, I actually think median price can be used as a tool to decide when to get back into the market by watching the trend. I want to buy back when the market is on the upswing, don’t care about timing the absolute bottom.

I don’t believe there will be any significant dead cat bounce. The run-up in prices since 98 was continuous without any real pause or slowdown. The coming crash is going to be so severe that I don’t expect any letup on the downside. For a significant dead cat bounce there has to be a lot of money waiting on the sidelines. I don’t believe there is, because by this point everyone who wanted to buy real estate already has. Once the downturn is at full speed, loan acquisition will also be more difficult.

All you have to do is watch the trends, and as median prices start to grow 5% or more, that may be a good signal to get into the market because we know that median prices are a lagging indicator.

[(former)FormerSanDiegan]

Asianautica –

RE: “Dead Cat bounce.” Are you calling the period in 1Q 1996 a dead cat bounce ?
This is about a low single-digit % deviation from the bottom. In the SD cycle that has historically dropped 30% over 6+ years before doubling (or tripling) over the following 6+ years, I think we could all survive buying the wrong side of a dead cat bounce like that one.

[sdrealtor]

Personally I belive there is an over fixation here on catching the absolute bottom of things. You will be buying a home, a place to live and enjoy not a financial instrument. PS is on the right track with her metrics but I dont believe any of you will have to be that scientific about a market that is so heavily based on emotion. In the next few years there should be a time to buy when it just plain makes sense to do so unlike today. It may not be the absolute bottom but it will be within driving distance of it. When prices have settled at a point that seems reasonable for a while, go out, find a home you love and buy it. Dont worry about making money on it, worry about whether you love it and can afford it with conservative financing. Then get on with the business of enjoying life. In the long run we are all dead.

[an]

Who ever is over fixated on catching the absolute bottom will probably catch the dead cat bounce, that’s all I’m saying. No one can every say they can time the market, any market and prove it. If you can, you’ll be making millions showing others to do it as well.

FormerSanDiegan: of course we all can survive at the last dead cat bounce. We all can survive right now too if you use 30 yr fixed mortgage and have stable jobs. That’s not the point. The point is no one can time the market and be able to call the top and bottom when it happens.

deadzone: That’s exactly what I’ll be doing. I’ll wait till things start turning up in earnest before I start buying.

[sdrealtor]

“I’ll wait till things start turning up in earnest before I start buying.”

Thats great advice to follow after the shake out and pretty simple to follow which was my point to begin with. I’ll be buying too as will many of my clients, friends and family members.

[(former)FormerSanDiegan]

AN – I agree that catching the absolute bottom is difficult, as is catching the absolute top.
I sold a rental prop in 2001 when the numbers I tracked such as the publicized “affordability” number was in the teens (~ 15%?), very close to the low hit in the previous peak. Boy was I wrong.

PS –
Another complication is the seasonal cycle. I know that the seasons in SD have more to do with June gloom and the amount of sunlight there is in the day than Autumn leaves and Winter chills.

However, there are very strong seasonal cycles in SD real estate. This adds “noise” to your measurement and you must be aware of these in any timing model.

[(former)FormerSanDiegan]

Seasonal fluctuations in San Diego.

Below is an example had sitting around on my PC. I have been tracking the median price since shortly after I purchased in SD in 2Q 1996. Admittedly not the best indicator, but it is what I started tracking in my youth as a new homeowner.

I’m sure this is full of flaws, but it illustrates that the seasonal cycle can be quite strong. This chart shows the average monthly increase for the PRECEEDING 6 month period. Averaged over the last 7 years. TO interpret: The average percentage monhtly increase from Jan-June has been approximately 2% per month during this boom (cumulative 12% over the first half of the year). However, prices were flat over roughly the last half of the year ( ~ 1/2% per month or cumulative ~3%).

I would suspect that other indicators will have similar cycles that make it more difficult to identify the long-term trend from seasonal trend.

[img_assist|nid=1217|title=seasonal trend – Central San Diego|desc=|link=node|align=left|width=400|height=300]

[Doofrat]

Beach sitting for seals: The pros and cons

I have a friend who’s a seal. Some of his friends are sea lions and they have seen an awful lot of sharks in the water lately and have been afraid to go in.

“I’m just scared of all the sharks, you used to be able to go in to the water and there were very few sharks, now you see all these fins out there circling. I’m hanging out here at Children’s Pool until I feel it’s safe.” says my seal friend.

Some of sea lions I interviewed felt the same way. “I have a friend who went in last week, and I haven’t seen him since, he was just going into the water for a quick swim, but now he hasn’t come out”

Rather than interview somebody like a lifeguard or a marine biologist, I decided to interview the sharks themselves to to find out if this was true:

“absolutely not!” said one unnamed shark “there are not many sharks out here, I invite the seals to come on in and swim their plump, juicy bodies around!”

Wanting to be sure to get an impartial view, I interviewed another shark “all those fins you see are just..umm … just dolphins! yeah Dolphins!” said another unnamed shark.

Well there you go seals, sounds like the water’s perfectly safe to me.

[sdrealtor]

roflmao

[powayseller]

an – how did 9/11 change the cycle? I didn’t see that in the data. The prices were going up continuously since before that, and did not go down at all. You mentioned a slowing in the rate of increase, but that is not in the method. I am looking for a shift, not a slowing in the rate of increase.

The median price data is very interesting, as is the data showing prices rise in the summer. Inventory rises in the summer too, as do sales.

Again, the method is not concerned with prices, medians, or even inventory.

The data part of the method is months inventory, so it combines supply and demand. This seems to be the most accurate metric of market direction.

I think I must not be explaining it well, because people are posting all this data about prices.

Disproving the theory requires showing that months inventory was rising while prices rose, or months inventory declinded while prices fell. I’ve not been able to find this data anywhere.

This is the method I will use, and I may miss the bottom by a month or two, but with real estate so slow moving, I would miss out at most on 1% or 2% of price. Small price to pay for being at the bottom. Imagine buying too early, and having the house lose another 5% or 10%.

an, you are welcome to keep this method in mind as you plan your purchase, or discard it, as you wish. I just learned about this method, so I will use it in the future, and maybe I will get rich! I can buy a lot of rental property at the bottom, and hold it for many years.

[(former)FormerSanDiegan]

PS –

My median price example was not meant to counter your emerging approach for timing, I just want to help you out by pointing out that whatever factor(s) you use may have a seasonal pattern to them.

Accounting for these factors will help avoid buying on a “local maximum” or “local minimum” in the signal you are monitoring.

Months of inventory takes in two factors : number of sales and number of properties on the market. Both of the underlying factors (sales & # of homes for sale) will have seasonal variations that must be taken into account.

For the record I think you CAN determine when you are in the neighborhood of a bottom or peak in real estate. However, I don’t think it matters much in the long run (10 years)if you hit it 5% too soon or 5% too late, as long as you buy at a time when the relative costs of renting vs buying are relatively close.

I don’t think you can hit anything within 1-2% (or even know whether you’ve hit it within 1%) when the variations are in the 1-2% range.

[powayseller]

I’m happy to be within 5%. I can’t pick the exact day of the bottom, but should be able to pick the quarter.

I will start a chart of months inventory. I can get the inventory data back to January from Bob C. Sales are published.

I will use pending for forward looking approach. Sales lag by 1-2 months.

I will post my findings. It will be interesting to note the seasonal effect, if any. thanks.

[(former)FormerSanDiegan]

PS –

I look forward to seeing the data, and hope that you can keep us updated as it progresses.

Also, if you also find any source for a longer historical record of inventory numbersthat would be useful. DQnews seems to have records back to 1988 (as mentioned in an article cited in the “Southland Home sales…” post), but I cannot find the records.

[an]

I’m also using the method you’re referring to, PS. All I’m saying is we can’t point out the exact bottom but if we keep an eye on things, we can fall w/in 5-10% of the bottom, hence my first few posts saying I’ll be happy to buy when I see price start rising in earnest. I also will be buying several rental properties when time is right, just like you. I think we both agree to the same thing, just stating things differently and misunderstanding each other. When rental properties once again have positive cash flow is when I will start considering buying rental properties. Best of luck to you and everyone else on here.

The reason I think 9/11 affected this cycle is if you look at the short term rates in 2001, it was in the high single digit range. After 9/11, the stock market start crashing hard. The Fed start lowering rates to the bottom of 1%. Because of this super low rate, I think that’s what spur the spike between 2002 and 2005. If rates stay in the high single digit where it was in 2001, I think we would be seeing it winding down in a “soft landing” like it did the last cycle.

[Author]

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