When will the market turn around? - Posted by J. Mack
Posted by J. Mack on June 13, 2007 at 20:51:52:
I posted this message on our club board in response to another member that had read an article in forbes magazine about a turn around being predicted for Real Estate in New England in 1q 2008. I am reposting it here looking for your thoughts and comments:
No one can pick a bottom or predict when appreciation will happen with any accuracy. The magazines take wild *** guesses to sell magazines. My wild *** guess is that I think the bottom will come around the spring of 2011. I think the market was about 30 % overvalued when I think it peaked at the end of 2004. I think the market develops “real” value at a rate of about 5-7 % per year. This would make the market fairly valued at the end of 2010, and a good spring 2011 will turn prices around.
But it’s a total guess. None of the "experts are even any good at predicting the major events that will affect the market. For example, how many of the so called experts predicted the sub prime collapse? Answer: None, that I know of, though it must have been obvious for a long time to a lot of people on wall street.
I guess if you’ve been in the business for any length of time, you know to be really careful of people who set themselves up as “experts”, almost all are charletons. Likewise most of the "experts who are predicting an iminent turn around in the market have some vested interest in the market turning around. Or, like forbes (or economy.com, who are behind most of these predictions) they just want publicity or to sell their publications, so they write what people want to read.
Real Estate prices are sticky, and react really slowly on the way down, and of the 3 factors killing the market now, only one has currently been priced in, the loss of really low ARM rates. I think the other 2 factors, the cascading effect of the banks tightening , and the increase in long term rates will be priced in over the next 2 to 4 years, before the market bottoms. Ben B’s goal of 1 to 2 % inflation is just silly, and he will drive the nation into a big recession before realizing his mistake and cutting rates. If real inflation does occur and long term rates go much higher than now, the pain in real estate will get longer and worse.
I do think we will have an average of 4 to 6 % appreciation in New England in the years 2010 to 2020. It probably won’t happen smoothly though. The market will probably be pretty flat for a lot of years, then jump, as it has in the past, with a decades worth of appreciation happening in the space of a few years, as it did here at the beginning of this decade.
What are your thoughts and comments?