Friday, September 28, 2007

It's Not Just The Psychology Stupid

Mary Umberger at the Chicago Tribune thinks she's got it figured out:

...there's widespread agreement that traditional economic forecasting, based on previous downturns, is of limited use because this slump is unique. Mortgage rates are generally not at daunting levels, employment is relatively steady, and there's no national crisis sending buyers to the sidelines -- circumstances that have put the brakes on housing before.

To paraphrase an old political line, it's the psychology, stupid.


I've got news for you Ms. Umberger.
It's the prices, it's the credit markets, it's the future expectations, it's the demographics, it's the overbuilding, it's the cost of living, it's balance of payments, it's taxes, it's lagging salaries, it's consumer commercial and government debt and yes, it's the psychology.

26 comments:

aaron said...

first and she's an idiot

Ogg the Caveman said...

Murses, and agreed.

Rob Dawg said...

And what else is "it"?

• The product is wrong.
• The product is not where the demand is.
• Recent rates and lending standards frontloaded demand.
• Current rates and lending standards are endloading demand.
• The REIC is the new Travel Agent.
• Zillow and online county records allow better decision making.
• Blogs.

Tyrone said...

Couldn't agree more, Rob. I read that article and said, "Huh???"

Psychology doesn't resolve $3,000+ monthly payments for a home.

Rob Dawg said...

Given what we've done in the last decade I don't see the elegant solution. I'm used to looking at a problem, questioning the parameters, justifying/refuting the assumptions, thinking outside of the box and inovating an elegant solution. This one defies that process. I am becoming more convinced that what we have now needs to crash so that we can construct an elegant solution from the wreckage. I know that sounds cold. I'm not thinking this is cold but rather a form of ripping the bandaid. People don't live forever and "spreading out" the pain for decades denies tens of millions the benefits of a quicker action.

pavlovianvestor said...

Is this person a sports writer (nothing against sports writers)? Here's the next step in the Mary's logic: it's the psychology, AND it's the media's fault for fueling that psychology.

What this market needs is a little Chuck Norris:

Chuck Norris Econ 101

Ogg the Caveman said...

What does REIC stand for?

Salt Lake Mortgage Guy said...

Ogg - REIC = Real Estate Industrial Complex. I believe Keith at Housing Panic coined it.

Rob - You're right on this one. A lot of factors and circumstances are coming to play here. That is what is affecting the "psychology" right now. As the credit markets evolve, we'll see that psychology change - which way is yet to be determined.

Let's also not forget the fraud and speculation that created today's conditions as well.

Rob Dawg said...

Real Estate Industrial Complex. A half centurty old reference to a speech (several) given by the outgoing President Eisenhower as to the dangers of any one capitialist special interest group holding undue sway on national policy. Dwight refered to the Military Industrial Complex.

Salt Lake Mortgage Guy said...

Is this person a sports writer (nothing against sports writers)?

Funny. A local Salt Lake sportscaster just pleaded guilty to his part in a real estate scam.

You can read about it here.

HauspocalypseNow said...

Hmmm so it appears nationwide the setember sales figures are going to be horrendously low.

My relitter friend she is freaking out she sent me these #s for simi for Setember sales:


9/03=231
9/04=189
9/06=144
9/07=31 (month not over, some back dating into oct will happen)

8/07=110 sales.


sooooooo the sales decline since the august credit crunch appears to HAVE CUT THE SALES VOLUME IN HALF across the board. This would double the 'months inventory' of course.

Holy crap when this gets into the MSM its gonna blow doors off. Half the fees paid to all the sharks when you buy a home, half the moving vans, half the home depot and furniture store runs. If nationwide is as bad as ventco it will be a recession 100%.

Should I short the homebuilders more? what do you think? how to profit...hmmm

Sac RE Agent said...

Rob, psychology was at play. There were a bunch of f&*%ing borrowers that believed they could afford a house which was five times bigger than they needed. These borrowers believed in appreciation always happening. Many of these borrowers also believed in never looking at any data besides an initial monthly payment.

Strange how sometimes psychology doesn't always match up to reality.



Nigel, building starts is a very important number to look at when projecting the future in new home sales. So the fact that building starts is down dramatically from last year is worth reporting in the local news. Especially when combined with what is going on at the national level. I think you hurt yourself in your blog when you always try to look at everything with rose colored glasses.

HauspocalypseNow said...

oops forgot one year
9/05=176

all unofficial numbers mind you. not investment advice* (hehe)

Salt Lake Mortgage Guy said...

So the fact that building starts is down dramatically from last year is worth reporting in the local news.

I agree Sac and I don't have a problem with that. What I object to is a story with a bunch of mixed data with an inaccurate conclusion.

In Salt Lake there are other reasons besides less demand dragging on building starts. Finding developable raw land is one as well as slowdowns by cities and municipalities. It's not all caused by the credit crunch as some would have you believe.

Rob Dawg said...

Simi Valley is interesting for several reasons. They experienced high growth in the boom and slowed as the boom slowed. They are close to LA and share some each of VenCo and LA. There is also the unusually high proportion of LA municipal and/or law enforcement and/or LA centric Federal employees who live there.

Simi has just stopped. There aren't very many old residents left and the median residents are not likely to go anywhere. The recent arrivestes are so totally screwed I don't know how to count them.

First the RE people who drank their own kool-aid. Second the spevuvestors. Third the Countrywide and Amgen buyers at the top. Fourth the mover uppers who retained the Oxnard, Ventura, Lancaster , whatever property and moved up.

The "Great Unwinding" wil be interesting to watch.

Rob Dawg said...

There were a bunch of f&*%ing borrowers that believed they could afford a house which was five times bigger than they needed. These borrowers believed in appreciation always happening. Many of these borrowers also believed in never looking at any data besides an initial monthly payment.

I respect your point but I put most of this under loose lending and not psychology.

You aren'y wrong. I'm just drawing different lines.

Psychology seems to me to be a weak excuse. I want to spead the blame everywhere else before falling back on psychology.

Sac RE Agent said...

SLC, whether land, actual houses or anything else, it's a case of supply and demand. My belief is there is very little demand for homes to be bought in the economic and financial climate surrounding real estate today. I don't live in SLC, so it could be different out there:-).

Rob, I agree with what you're saying. We're just coming at it from two different sides. In marketing their products, lenders have to use psychology 'to get into the minds of potential buyers' so they sell their loan products to them.

Peripheral Visionary said...

In the inbox today: an e-mail from Fidelity entitled "Fidelity E-news: Exit Stock Market at Own Risk", with the expected "now is the time to invest!" boilerplate. Shameless.

And when you get down to it, pricing and inflation are themselves psychological (as Dr. Bernanke just recently pointed out.) Supply, affordability, regulation, and taxes, on the other hand, are not.

HauspocalypseNow said...

simi is interesting yes.


however ground zero for foreclosures in ventco is oxnard/ventura. OMG the wave of them is enourmous. Check foreclosureradar or similar its astounding. Mostly due to hispanics being taken advantage of by subprime lenders/realtors or they are all fraudsters depending upon perspective.

Its truly astounding to see sales go below any previous recorded level! I bet you have to go back to early 80's to have lower than 30 sales in simi, maybe the 1970's! and the city was way small then.

even the winter months cleared 100 sales previously in simi. get ready for RE offices to shut down all over. office rents should go down.

Its not likely that sept 07 is the worst month ever and that all future months will be higher sales.

Probably this is the new normal as we enter recession/layoff cycle that lasts for years.

Sac RE Agent said...

just got my weekly update of NODs from the title company. this week has 135 pages of defaulting properties in Sacramento County. With four properties on a page, that's over 500 properties that just had a Notice of Default filed in roughly the last two weeks.

For comparison, the highest I've seen before was just under 300 properties on this report. Don't know what caused the huge surge, but hopefully it won't continue.

If it does, it's a great time for Legion to be looking for a bargain! :-)

Lost Cause said...

FDIC Shuts Down NetBank Due to Defaults

NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government on Friday because of an excessive level of mortgage defaults

Lost Cause said...

Dollar sinks as gold hits 27-year high

I hate to be all doom and gloom...ok, I really love it. But what a vote of confidence for the stock market and Bush Co.

ha38349 said...

HR 3648 Mortgage Forgiveness Debt Relief Act of 2007
Has anyone taken a look at this?
http://waysandmeans.house.gov/media/pdf/110/07%2009%2026%20Mortgage%20Summary.pdf
One effect I can think of is those folks who were struggling to hold onto the house will now be able to just let it go!

Akubi said...

Zillow and online county records allow better decision making.
But of course; the key question is whether to focus on fishnets, showerheads or octupus balls, though.

Akubi said...

How about County property taxes and who is paying them - and the old fart Prop 13 losers who aren't (and rest on their laurels of social security checks with yoga)...?
New concept...
Perhaps we can send the Boomers to Burma and bring the monks here.
Win-win!

FlyingMonkeyWarrior said...

@ Alpha Dawg,
Yep.