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We are seeing a classic asset bubble cycle in the housing market (as well as the credit market, etc). Many investors feel that the best time to buy is when the general public is selling, and financial market history is full of retrospective examples that validate this philosophy. The chart below provides a walk-through of the cyclical nature of asset markets, often characterized by irrational (exuberance) on the way up, and irrational (panic) on the way down.
The curve may not always look this symmetrical, but the general idea is clear. And so where are we with housing in this cycle? I’d say we are somewhere between “Panic” and “Despondency”. And there is no doubt that great deals are out there today, and will continue to show up on the market. Today’s home seller is motivated by fear or necessity; they are not selling because they think its the best time – they just think today is better than tomorrow.
I think the real test is how long this lower part of the curve drifts on before we see “Hope” take over. We are seeing seasoned investors out poking around again, and looking for the ‘right’ deal. I get the sense that many do not believe we have seen the optimal entry point back in the market. Could be a slow rise back to optimism, but it will eventually get there…