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Cyclical, Seasonal or Emotional: Where is the Real Estate Market Today? July 31, 2009

Posted by John Watch in AccuriZ News, AccuriZ Reports, News Feed.
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seeking2This was originally a comment made to a SeekingAlpha.com article by Tim Iacono titled, ‘Has the Housing Market Hit Bottom?’

Real Estate is three things:

  • Cyclical

  • Seasonal

  • Emotional

Cyclical Cycles run about 15 years in length with the current cycle beginning late 2006.  Looking at public records, we can track the beginning of this down cycle to the last down cycle in 1990-1991 and we have heard thousands of comments on this.  When the cyclical adjustment occurs it is an adjustment to the underlying structural issues in the market.  For this real estate cyclical cycle, the structural problem is comprised of two elements:

A. Influx of new home buyers who received mortgages through non-standard financing.  That is the emergence of No Asset, No Docs, Interest Only, Mortgages at 125% of Value programs.  We all know the affect these had on the market.

B. Excessive over development which created 5 million vacant housing units not supported by population demand.  Expectations of Baby Boomer migration and new homeowner growth fueled this development.  The existing oversupply issue will take at least two, if not three more years to be absorbed and new housing starts will remain below 800,000 units in 2010 and 1 million in 2011.

Seasonal Changes occur every year and follow a fairly consistent pattern.  The news today and for the next several months is a result of seasonal changes, not necessarily structural ones.  The spring and summer selling seasons always show the top values in any market, and the fall and winter show the bottom.  This is one of the prime effects of the recent crash; it began in late 2006 and early 2007, but did not pick up speed until late 2008.  By that time, the snow ball going down the hill was an avalanche and the population and financial system reacted accordingly:  they ran!  The actual correction or rebound in housing will not show signs until the beginning of the spring 2010 selling season.

Emotional changes are best described by many of the commentaries.  Because we lack so much important property data on the real estate markets, such as the sales price per square foot which the rest of the industrialized world uses and because of our own ignorance or arrogance (we all know the answer) our emotions take control.  Fear of the unknown is the worst element of any financial market.  That is what we’ve experienced for the past nine months. 

What creates fear is the lack of information.  In real estate, we always are reporting on the past and trying to guess the future.  Utilization of more quantitative data will permit us to evaluate data more accurately and track the markets in an efficient manner. 

How many of the commentators and authors have the actual data?  How many are relying on other data sources to build their articles?  I have the actual sales and inventory data from over 1,000 assessment offices covering the top 100 MSA’s; but I must rely on Census, Commerce, Labor for their data and we all know there are issues with the data.

So I finish with this, the Free Market must develop an independent solution to track and predict the real estate market, or we will all be talking about this again in 15 years.

For more information on Real Estate Reports and Property Data, CLICK HERE

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