In light of the latest Case Shiller data was out this morning, I wanted to draw your attention to a fascinating chart from the Irvine Housing Blog.

Its a Real Estate focused variant of the market cycle/psychological chart we have run in the past. I have annotated it in red, to show where we are.

Note what they call a bear rally is actually just the result of government programs, mortgage mods, HAMP, etc.

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Real Estate Cycle of Sentiment

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Irvine Housing Blog interprets the chart as “a sign that people are clinging to the hope of a real estate recovery. We are not yet at the bottom.”

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Previously:

5 Stages of Market Grief (January 7th, 2008)

Lagging Psychology at Turning Points (April 15th, 2010)

Psychology Cheat Sheet (June 29th, 2010)

Category: Psychology, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Psychological Stages of a RE Bubble Market”

  1. Chief Tomahawk says:

    Time to update that roller coaster animation and adapt it to this Irvine Housing Blog …

    Seriously though, that straight, upward sloping line representing ‘rental breakeven’ is highly suspect. The inability to sell homes, especially condos, will see a lot more properties transition over to the rental market, depressing rents. Go ahead and bring over 3 million immigrants to solve that problem, if they can A) find jobs, and B) overcome Nativist anti-immigrant sentiments which historically become more pronounced when the economic pie shrinks.

  2. Chief Tomahawk says:

    Further, there’s been a few ‘all cash’ sale requests to hit the market around here (suburban Chicago) lately, typically asking half off but all in cash, and the cynic in me is inclined to believe those folks want to return to their homeland with a bounty full of loot to set themselves up. Being a non-violent crime, I would guess they’d be a low priority to go after overseas.

  3. Mannwich says:

    Seems about right to me.

  4. rktbrkr says:

    According to NAR July report just released something like 24% of home sales nationally were all cash which is a remarkable number

  5. Soylent Green Is People says:

    Wish there was a way to find out if those all cash purchases were courthouse steps flip buyers. 24% seems very high, unless there was an influx of investor purchases. We’ve heard tales of hedge funds buying up distressed homes to flip. The IHB is constructing a plan to do just that with a few local high net worth individuals. Perhaps that’s also where the cash buyers have come from.

    Not to cross pollinate TBP with IHB to heavily, but the post today at IHB had a remarkable property profiled. The owner pulled more out in cash (Mortgage Equity Withdrawal – MEW) than what the property will likely re-sell for in the current market. The ability to juice an asset down to it’s barren, dry husk is a rare thing.

    My .02c

    Soylent Green Is People.

  6. Latesummer2009 says:

    That is an excellent graph demonstrating the psychological stages of a real estate cycle. However, in the high end markets of the Soutbay and the Westside of Los Angeles, we have just hit the fear stage. Sellers are finally starting to get it. But, the capitulation stage could come rapidly, as banks begin to supply the market with more short sales and REOs. The banks know, the gig is up. Even the LA Times, has an interesting article about $1,000,000 + homes falling into default much quicker than other homes in LA.

    http://www.westsideremeltdown.blogspot.com

  7. S Brennan says:

    Hmmm…maybe it’s just me, but shouldn’t this graph have a scale of time and numbers. I went over to his blog to see if he offered data and all got was opinion. He may be right about where we are, he may be wrong, but we will never know, because this graph is like an ink blot.

    On his premise that renting is great…dunno, I did it until I was 43 and I have lot more miserable experiences than he did. But being a one note monkey I am obligated to point out, in my part of the world, people whose stories I know, nobody would be selling in this market where it not for income loss.

    It’s not the economy stupid, it’s Jobs…jobs that pay a decent wage. Not money flow, not taxes…business has enough cash, the banks have an open spigot at the federal trough and still they can’t push the rope. Come with series of NATIONAL infrastructure projects…define the mission, not the method [require it be American made 100%, just like the tax dollars that pay for it] and let the Gen. Groves, Oppys, Von Brauns have at it. The fear will disappear, business will see opportunities, we’ve suceeded with this before, we can do it again.

    I may be wrong on this point, but doesn’t Barack have $500,000,000,000.00 in money from TARP…and truth be told, all the money he can print?

  8. DMR says:

    S Brennan said: “nobody would be selling in this market where it not for income loss”

    Exactly.

    For the same reason that I don’t need to rush out and sell my car if the blue book values drop, my home’s value is just a number on a paper somewhere. I ignored RE agents and brokers when they said that my income can support a house twice as big. I didn’t need a big fat house for the same reason that I didn’t need a big fat car :)

    The problem is not that a majority of homeowners made a mistake. The problem is that sales are at the margin. If just 1% of homes were owned by “flippers” who were not interested in the actual utility of the property, that can result in a dead housing market. A market where legitimate sellers can’t get out when they need to and legitimate buyers find that even if housing has become “cheap”, the stock is really filled with crappy foreclosed homes that no-one would really want to “live” in.

    Bubbles are not a victimless crime :)

  9. Todd in SM says:

    Barry,

    Could you tell us where you think that “Denial” bump peaked, and where you think the “Despair” bottom will be?

    I would decrease the slope of the downward angle, put the “we are here circle” a little higher, mark the Denial bump April-May 2010 (due to tax rebate expiring), and mark the “Despair” bottom at Feb-Mar 2012. IMHO.

    Thanks.

  10. vine2wine says:

    Despair will be sweet….from an academic point of view. I would hope not to see it happen again in my lifetime. Makes for interesting storytelling when I am grandpappy one day.

  11. hammerandtong2001 says:

    Well, I duuno –

    It’s very informative to read the posts here about other markets and how price is performing there.

    I can tell you this —

    I’m nearby — to what I always considered to be — an overpriced NYC suburban community, with an excellent public school and astoundingly high real-estate property taxes. (And I do mean astounding.)I’d guess that some single family homes there have sold at prices below ask. But I can tell you they are selling, and selling at fairly brisk pace and all the homes are priced at well over $1 mil, with an average price of about $2.2 – 2.5 mil.

    And that said, I’m very sure that this is not the case nationwide.

    But, these houses are moving. And dat’s da truth.

    .

  12. peter north says:

    I know the scales for the X and Y axes are blank, but shouldn’t the “despair” part shoot a lot lower before the trend reverts to the mean? Seems awfully skewed to the upside in the go-go phases…

  13. rootless cosmopolitan says:

    @S Brennan:

    You write:

    It’s not the economy stupid, it’s Jobs…jobs that pay a decent wage.

    I don’t understand what you are saying here. The job situation and the total income of the work force is closely related to the economy, isn’t it?

    Then you also write:

    Not money flow, not taxes…business has enough cash,

    Which ones are they businesses with all the cash? I suspect you want to say here that businesses sitting on cash and just waiting for opportunities to spend it. If this is what you want to say, I’m afraid you’ve got it wrong. Where do the businesses have the cash? Probably not in a big vault or under the CFO’s mattress. Instead, they have it invested into treasuries, or debt of other businesses. That is, all the cash those businesses have as assets has already been spent. Their assets are the debt of others, with which the others financed their investments. If all the businesses with positive cash reserves retrieved their reserves to spend it for productive investments, integrated over the whole economy, the total amount of investments still wouldn’t increase.

  14. DiggidyDan says:

    I wouldn’t say this is accurate. Houses in my area (one of the hardest hit in the country in SW Florida) are coming in with appraisals at FAR below rental breakeven right now. I know because when I made the decision to buy (foolishly) it was at right about rental breakeven for my monthly payments. Prices are about 50% below what it would cost to build and monthly payments are about 50% below what it would cost to have rented the same place 4 years ago. Then again, rental breakeven has gone down as well, given the amount of “inwestors” who are stuck paying 2 mortgages or bank owned properties and are renting out their homes below carrying cost so they don’t have to eat the whole amount on the second place just sitting there vacant and depreciating without upkeep. This rental breakeven line is not accurate as a straight line, as rent is a market as well, and it has gone down considerably with decreased income/employment and supply of cheap rentals.

  15. S Brennan says:

    hammerandtong2001,

    I agree, niches that are immune to economic cycles will not see a real drop, expensive areas around DC are also immune….which, I think, re-enforces my point.

    An analogous situation in the marine industry, sales of boats has cratered from 2005 levels…except for yachts, [yes REAL yachts, ones with "helo" pads], those over 200 ft LOA are/have been increasing rather dramatically.

    I suspect personal jets [not aircraft] are also seeing the effects of the “bananafication” of our economy.

    “bananafication”…could it become a colloquialism that makes it into the lexicon? One post Barry…

  16. rootless cosmopolitan says:

    I think this graphic can’t be generalized for the whole country. DiggyDan says houses come to the market below the rental breakeven where he is in Florida. For the New York City market, it’s the opposite. Here the market is rather at the secondary peak or shortly after and I’m waiting for that it’s entering the fear phase. The ratio of price to household income for New York City has still to come down by about 30 to 50% before it will be back to pre-bubble normal. And this isn’t just the case for Manhattan, this is also the case for the other boroughs, e.g. the Bronx. So if anyone has any excuses why Manhattan wouldn’t follow the general pattern, like Manhattan is special and all the foreign buyers keeping prices up,what are the excuses for the other boroughs?

  17. S Brennan says:

    rootless cosmopolitan asks:

    “I don’t understand what you are saying here. The job situation and the total income of the work force is closely related to the economy, isn’t it?”

    I need to get a job finished so read this:

    http://blogs.wsj.com/wealth/2010/08/02/do-the-rich-even-need-the-rest-of-america-anymore/

    Obviously, as Mark Twain said…I’m paraphrasing here, “if your job depends on you not understanding…”

    Which is indicated by the supposition-theory-”religious belief” given as fact on your next comment. so to be brief here’s Yves take:

    ScottB says:
    August 31, 2010 at 1:45 pm

    Yves, a question about corporate savings: I was under the impression that while corporate cash holdings have been growing, corporate debt as a whole has been increasing this past decade, at least according to Fed data. How does that square with underinvestment? Thanks for any reply.

    *
    Yves Smith says:
    August 31, 2010 at 3:07 pm

    Leveraged buyouts. More than half the corporate debt ratings in the US are at junk bond level. And they don’t invest.

  18. rootless cosmopolitan says:

    @S Brennan:

    Obviously, you have a problem with someone contradicting you. Your problem.

    The WSJ article doesn’t answer the question why the job situation wouldn’t be closely tied to the economy. Your statement doesn’t make sense. An article about the owning and investing class buying goods and investing in other parts of the world doesn’t solve this. (And I don’t care that they do. Why shouldn’t they? For patriotic reasons? I don’t care about those reasons. It’s a world economy with global markets anyway.)

    And your reference to Yves Smith doesn’t contain any counter-argument to what I said either. That more than half of the corporate debt ratings were at junk bond level is a statement about the debtor side of the economy, which is one side in the equation that I mentioned. The money spent for leveraged buyouts has someone else now, who, in turn, have spent it for something else.

  19. S Brennan says:

    I have a problem with somebody who wants to contradict me, but pretends to ask a question.

    Try:

    I disagree with you here…here & here, this is my belief…xyz

    Instead of:

    I don’t understand what you are trying to say…you must be confused.

    You’ll see a marked improvement in my responses…or more likely, no response.

  20. rootless cosmopolitan says:

    @S Brennan:

    I couldn’t make sense of your argument. So I asked. Before I possibly disagree with something I have to understand what is being said. I actually tried to be polite, to not just assume something about what you wanted to say and base my reply on this possibly wrong assumption. If you have perceived my comment that I wanted to paint you as “confused” then this is solely in your head, since I neither said this, nor did I imply this in my comment.

  21. TakBak04 says:

    If we wait long enough…we can pick up a McMansion with Swimming pool a maid and a cook…for “Pennies on the Dollar?..ANYWHERE that’s WARM in AMERICA..these days?

    Talk about “Vulture Capitalism.”

    BUT HEY…to the VULTURES are the SUSTAINABLE LEAVINGS…from ROAD KILL..

    Don’t ever Underestimate the ability of folks who see the “leavings” as “NOT” Road Kill….but “Investments for their Future!”

    Until…”This Time…It’s Different…or Maybe Not?”

    It’s about LUCK and TIME FRAME…!

  22. philipat says:

    Can’t wait to read what the NAR have to say about this. I bet they won’t mention that prices have now reached their 2003 levels and probably only have another 15-20% to drop for mean reversion to occur?

  23. MayorQuimby says:

    I disagree with the “we are here” assessment. We are most certainly just past the denial stage but before the fear.

  24. philipat says:

    @peter north

    “I know the scales for the X and Y axes are blank, but shouldn’t the “despair” part shoot a lot lower before the trend reverts to the mean? Seems awfully skewed to the upside in the go-go phases…”

    Got to keep it up :-)

  25. S Brennan says:

    The link says entry home prices in England are going up…which contrast rather dramatically with my working class neighborhood…

    a conservative in UK would be a flaming liberal in the US.

    Germany is recovering at 9% per year…high wages, unions…all sorts of trouble according to our “experts”.

    is there something in the US water?

    http://www.bbc.co.uk/news/uk-scotland-11145311

  26. rootless cosmopolitan says:

    @S Brennan:

    Germany is recovering at 9% per year…high wages, unions…all sorts of trouble according to our “experts”.

    A growth rate in a single quarter that annualized would give 9% doesn’t mean the growth is really 9% per year. The economic contraction was deeper in Germany during the 2008/2009 recession phase, now the rebound is somewhat stronger. It’s likely that this strong rebound will just have been something temporary, particularly considering the strong dependence of Germany’s economy on exports. And there is some myth about high wages in Germany. If this ever was true it has been over for a while. Germany’s real wages for workers have been falling for years and are lower than in other European countries. There are large low wage sectors in Germany. And there are no statuary minimum wages, although there are minimum wages for some branches and occupations. The unions have played along with this very well. Everything for the Fatherland and international competitiveness. The result is a stagnating or contracting domestic market and an even stronger dependence on exports.

    Somewhat older but still not outdated:
    http://query.nytimes.com/gst/abstract.html?res=9805E4D9133EE433A25751C2A96E9C94609FD7CF

    Just kidding.

    This is from two years ago. Note, this was even before the recession:
    http://www.spiegel.de/international/germany/0,1518,592860,00.html

    And another article:
    http://www.voxeu.org/index.php?q=node/5212

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