You heard it here first… we are no longer in a housing slump.
At first, I thought the article that I read from the Desert Sun was a joke… a little wool pulled over our eyes in SoCal. Just the kind of jaded sarcasm that you would expect.
Except that this is the land if Kool-aid.
A two-month surge in home sales and renewed buyer interest have many desert real estate professionals feeling upbeat about the housing market in 2007.
Further bolstering their confidence: A new report that 2006 wasn’t as bad as some had feared.
“Things are really picking up in February,” said Paul Hoffman, a Realtor with Paul Hoffman and Associates, Windermere Pro Realty. “I closed out 2006 pretty strong, just barely below 2005.”
Whoa… a whole 2 months is a turnaround. I’m glad to see that we’ve got plenty of the NBABTTB crowd (Never Been A Better Time To Buy) which reminds me of a post nearly 1 year ago. This is one of our first calls that it’s never been a better time to buy… if in fact it’s not clearly a “buy now or be priced out forever” legacy that has been left over from the past few months.
In that post, we followed the picture that Mish gave us some time ago. His picture back then looked like this:
In my post, I discussed the crush of knife catchers who would step up to the plate after the initial price drop… one of our favorites was Gene Burns who was already eyeing Carlsbad. My prediction then?
Too bad for him he doesn’t know much about investing psychology because that’s about the time the bursting bubble will just be getting started. He will be part of a sucker rally that will make some think that real estate is just starting back up before it collapses again. We see this in many investing models and is referred to as “head and shoulders”, “sucker rally”, “dead cat bounce”, “catching the falling knife”, and many other lovable phrases. The surprise here is how fast you can see it develop; we are just now getting over the phase where we say there is a”permanently high plateau“. Mike Shedlock recently informed us that we have crested the next location on the psychology of the bubble that Japan went through almost 15 years ago.
Just how accurate was that prediction? While we would all like to just get this over with, the reality is that the housing market moves at a glacial pace, this is going to take a while.
However, it is clear to see that the lending guidelines that are changing from a number of sides are the real clincher in this. The reason it takes so long is that there is a significant feedback loop that lenders need to go through. In addition, once the lenders reach a point of wiping away their collective cognitive dissonance on the whoel “market going down” thing, other sellers will have yet to accept it. There will be a time when motivated sellers will dominate the market, and that is when prices will quickly go down. In a true credit event scenario, there might be as much as a 10% per year correction in a given local area… especially SoCal where we have some of the most expensive real estate around, we’re just more vulnerable here to job loss, companies relocating for lower cost areas, and general consumer burnout. True, we have some of the most wealthy in the area, but if you take away the housing wealth, we’re decidedly poorer than we thought we were. The fact that our “wealth” is built on debt makes our situation as precarious as the Roaring 20′s.
However, getting back to our original story, one must at least have raised eyebrows from the following facts:
1. The author has a hard time keeping facts straight. It appears that he meant 2007 in this statement:
Statistics, despite a cooling housing market, indicate a better-than-expected showing in 2006.
2. He is decidedly new to the area; returning from the land of sinking housing:
First started in May 2003, left to go to a newspaper in Denver and returned in July 2006.
3. The only “Experts” he quotes are in fact, real estate agents. What their predictive ability or history is suspect at best. When you ask a salesman how business is doing, if you find one that says terrible, he’s likely a poor salesman. This is why good salesmen make terrible predictors, and the same reason that Gary Watts called it so poorly last year.
4. The most telling statement is actually near the end:
New home builders in the valley, meanwhile, are “aggressively” managing their inventories, said Fred Bell, executive director of the Desert Chapter of the Building Industry Association.
I, for one am glad to hear people say that we’re in for a soft landing. It means we’re that much closer to the crash.
Dear SCREBC Blog Readers:
