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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (28214)	3/16/2005 11:24:27 AM
From: CalculatedRisk	Read Replies (1) \| Respond to of 306849

Thanks! For that calculation, I used the CPI-U (all items) less shelter so it includes food and energy. And I do think RE is California #1 industry right now. Great point on liquidity. I think RE has added an enormous amount of liquidity to the economy so the a slow down will remove that source of liquidity. There is definitely a potential negative feedback loop as RE slows down, people lose jobs in the RE related fields, and RE slows down more. Best Regards!

To: Wyätt Gwyön who wrote (28214)	3/16/2005 11:34:23 AM
From: GraceZ	Read Replies (1) \| Respond to of 306849

there do seem to be some peculiarities about the RE market, as you noted, in terms of its being "sticky downward". perhaps another reason for this "property" of the RE market is the tendency for people to be in denial about the existence of a down market, combined with the liquidity dry-up. There are no margin calls in RE and people can't get out of a house underwater without defaulting on their loan or coming to the closing with money they may not have, two things that they have a real resistance to doing. Most people, when faced with a decline in the value of their property below the loan value, will simply take it off the market and continue to pay the loan down. Stocks bought with leverage are self liquidating to a certain extent AND most importantly, there is always a guaranteed buyer for any given stock. RE may not have a buyer no matter how much you lower the price (we have some properties in B-more that can't find buyers at zero), in fact sometimes lowering the price too much makes buyers wary that your house has some terrible flaw that isn't immediately apparent. I don't necessarily think this holds (price being sticky on the downside) for RE held as a spec. I think speculators are far more likely to simply walk away leaving a bank or builder with the bulk of the decline. So it will be interesting to see how this all shakes out in places where speculation is the highest. I think the declines will be swiftest in those markets, similar to what you see in stocks. It all depends on whether the bag holders have strong hands or weak ones. I have a feeling the banks will be more resistant to selling at a loss (they move slow and get stuck on trying to get that loan value back) while the builders will be more realistic about dumping simply because they've been through this before and they have record amounts of profit built in to their houses in these markets.