I don’t understand how a “dead cat bounce” is possible in the housing market. It is a big slow moving ship, that does not reverse direction for a couple weeks or a month. Once it moves, it keeps moving for years, in that same trend. Am I missing something?
A dead cat bounce happens because there are bargain hunters like us, awash with more than 20% downpayment money but waiting to jump in to the market. So some of us will lose patience and be sucked into the market as prices start to really tumble causing a dead cat bounce or maybe a false bottom. Also there will be some people who would set targets like 20%, 30%, etc to jump in and maybe at psychological levels of 300K, 500K or something and will jump in, even though fundamentals haven’t changed completely. It is similar to the slight reduction in prices that happened in 2004 as bubble bloggers started to emerge and some of my friends sold their houses as they felt housing was in bubble. But the uptrend still kicked in again and continued till summer of 2005. On both up and down cycles, greed and fear make the market over correct.
To me, no number is certain. Interest rates and incomes are the key in my opinion. From today’s prices, I believe there will be 50% reduction in real dollars but it will happen in 4-5 years. That means, assuming real inflation of around 4-5%, prices will be down around 30-35% from current prices in 5 years. However, if we suffer from hyper-inflation and dollar takes a tumble then its anyone’s guess what may happen.
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