The Truth — ‘They’ Don’t Have A Clue When This Correction Will End
Posted @ 11:18 am - Filed under Economy, Investment Lessons, Market Correction, Real Estate Investing
There are many schools of thought about when this market correction is gonna cry uncle and take a hike. In seemingly unending supply is how sure everyone is of their opinions. Sometimes unintentionally it becomes almost a standup comedy routine. There are actually folks who not only believe recovery is around the corner, but will bring another mini-boom with it. On the other side of that laugh track is the sect who have actually been rooting for a total collapse. Their ultimate prediction includes years more of this downward slide, ending only when prices have arrived at a point close to where Mom and Dad paid for their home in 1985.
Ironically, I don’t discount either extreme. I don’t believe either one, but I don’t completely discount them as impossible. The case for each can at least plausibly be made.
That said, there hasn’t been a downturn in real estate prices in which a 50-80% price drop wasn’t predicted by some. Of course, it didn’t happen any of the times it’s been predicted. Could it? Yep. Will it? In my opinion there’s a better chance of a snowstorm at noon on August 16th in Death Valley, than an 80% drop in real estate values. Conversely, prices in a recovery rising at a double digit pace is just as likely as that snowstorm — in my opinion.
(Gotta add ‘in my opinion’ just in case that snowstorm actually hits.) 
The National Association of Realtors long ago decided credibility wasn’t their friend. They make Pollyanna look like a pessimist. If they told me it was under 85˚ in Minnesota on Christmas morning, I’d check. If you could harness the energy generated by the spin they’ve given this correction we wouldn’t need foreign oil ever again.
Then there are those who say everyone not agreeing with their death of the housing market scenario is stupid, and shouldn’t be allowed to breathe the same air they do. When they run across someone with whom they disagree, they treat them like the guy who got their little sister pregnant and disappeared.
So many out there know they’re right. In the light of the last 40 years of our economic and real estate history, that’s not only foolish, it’s proof they were never on M.I.T.’s short list for recruitment.
Can we all, once and forever, finally agree on one thing? The last reliable crystal ball fell off the table and cracked long ago.
If someone told me Sandy Koufax wasn’t the greatest pitcher of all time I’d vehemently disagree. Is it plausible there are solid arguments for Roger Clemens? Of course it’s plausible — not #$&*@# likely, but plausible. There is no argument whatsoever though, supporting anyone but Willie Mays as the best all-around player ever to put on a major league uniform.
Back to our current Market Correction and the timing of its recovery.
The thinking I’ve read and heard, for the most part comes down to a couple points of view.
Let me make the argument as best I can, for another 2-3 years.
The sub-prime problems will mushroom and infect the entire economy A recession isn’t likely, it’s a fait accompli — recessions extend corrections Bernanke doesn’t get it — not working from Greenspan’s playbook dooms us Tightened credit will only exacerbate the problem by lowering demand CNN, NBC, ABC, CBS, and MSNBC among others, often say so Wall Street Bears have bet million$ this will go on for quite awhile European economies now having problem — it’s going viral
That’s the short list. Any reasonable person can sift through those reasons and decide which ones if any, move that argument forward.
The scary faces come out not matter what though. There’s not an economic bump in the road they can’t turn into a repeat of the Great Depression.
Our last recession, in 2001 I think, had little if any affect on the real estate market. In fact, real estate pretty much ignored that recession. The recessions of 1974-75 and 1980-82 weren’t so polite. Real estate markets virtually disappeared in the later. In the former, the market wasn’t devastated, but life wasn’t a bowl of cherries. I was in houses back then, and though I did fine, earning a decent living was a major chore. Kinda like now.
What happened in the early 1990’s was a total disaster for the real estate market. However, that one, at least for San Diego, was a real life disastrous perfect storm. We (San Diego) were hardest hit by it, but across the board the country was put on the canvass.
Let me make the arguments for the correction fading sooner rather than later.
Major buyers are picking up large blocks of real estate Many Wall Street types are now buying ‘financials’ — i.e. lenders Lenders are lending — stop the presses — I smell an axiom Non-owner occupied loans are out there in force — go figure Low down investor loans are also out there in force Pockets of appreciation are popping up — diversified geographically Wall Street is fine — interest rates fine — unemployment way fine Inflation has trended down the last three years — hardly a bad omen Wall Street losses though huge, are not wreaking havoc
These two schools of thought have far more reasons than listed here, maybe more compelling too.
Predicting our rise from this downturn is akin to foretelling who will be playing in the 2012 World Series — foolishness. It’ll end when it ends. When it does, we’ll all point to the underlying reasons as if we knew it all along. We’ll be full of it, but we’ll still do it, right?
The timing of our ultimate recovery isn’t the point here. Not by a long shot.
The Point?
I’ve now seen, as a working pro, six market corrections of varying degrees. Some were so slight we only knew they existed cuz they were on the news. 2001 is a good example of much ado about not much as recessions go. Some were almost literally catastrophic — the S & L train wreck comes to mind.
If the sun sets in the west tomorrow this market correction will end the same way all the others have — with a recovery.
Don’t complicate it by searching in vain for the timing of that recovery. The only ones who know are the ones who’ll be claiming clairvoyance after it’s already started — and they’ll be makin’ it up as they go. Ignore folks on either side who think we’re all idiots cuz we can’t see the logic in their thinking.
The Bonus Point?
Without a single exception, those investing in real estate before recoveries have been universally certified by excited talking heads, have enjoyed significantly increased net worth in the long run. Whether they bought five minutes or two years before the recovery started didn’t much matter. Either way the price was right.
That statement will cause blood pressure rises in the ‘we’re all gonna die’ corner of the room. Yawn.
Good deals today might not be as good the next year. So what? Smart investors look at the big picture, and tend to think long term. Buying in ‘82 or ‘83 seemed risky at the time to some. Obviously those whose timing was closer to the actual bottom, did better. Duh. Either way, when they both sold or executed tax deferred exchanges in 1988, both were grinning ear to ear. The same is true of buyers in the early to mid ’90’s. Their long term outlooks paid off big time when they sold in 2002.
Someone you know is gonna buy lower than you did. Get over it.
When the recovery starts? Hugely debatable. Buying before it starts depends on which scenario you buy into. If you think we’re all goin’ to hell in a hand basket — don’t buy. How simple is that? History is on the side of those who don’t attempt to time recoveries. It’s not an absolute lock, but every recovery since World War II is on your side. 
We’ll all chip in for gold medal for the lone investor who bought the day before everything began to get better.
Until then…
What does the phrase, Buyers’ Market mean to you? Oh, need to sell first? Then do it, and price your stuff so it sells in 30 days or less. The sooner you convert yourself from seller to buyer, the better you’ll be — though opinions seem to vary.
This entry was posted on Friday, December 21st, 2007 at 11:18 am and is filed under Economy, Investment Lessons, Market Correction, Real Estate Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.