Dow breaks 8,000 April 2, 2009
Whether you are talking about the stock market or the housing market or the economy in general, it is very interesting to watch the discussions of “bottom” and “a recovery”. Today the Dow is peeking into the 8s, with headlines of “Dow Crosses 8,000 in Broad Rally”. I was surprised by this sentence in that article:
“We have more and more evidence that the economy is heading for some stabilization, and we see some leading indicators that show that the bottom could be near,” …
I admit I am confused by that statement. If the market does stabilize from here out, wouldn’t that make “the bottom” behind us vs “near”? If we never get there again, wouldn’t March 9th when the Dow closed at 6,547 be “bottom” vs some date in the near future? Does “bottom could be near” mean we will shortly be under 6,547? I’m pretty sure that is not what they mean. I think they mean bottom isn’t bottom, until “they” choose to declare it as bottom at some point in the near future.
I expect some will see stabilizing as “a recovery” while others won’t view the market as “in recovery” until it is up past it’s historic high point. I clearly don’t expect home prices in the Seattle Area to be significantly higher in May of 2010, than they are in May of 2009. I expect to be “at bottom” for at least 3 years.
So what does “at bottom” mean to you? What does “a recovery” look like to you? I find it very interesting to study the various differences in people’s perspectives on these two concepts.
Ardell- As we all know, Italians are supposed to be instinctive, not rational in their decision-making. Engineers (not architects) are always trying to put a number- “get a handle” on the problem. As I said in a previous RCG Post, when I (and all the rest of us) step out to get the paper some morning and enough of us hear the birds singing, that’s the bottom. It’s that simple.
I believe the author was referring to the economy’s bottom, not the stock market’s bottom. Stocks generally rise before an economic recovery, so if stocks are rallying now (on economic data that looks in the past), it means that perhaps the economy is nearing a bottom and will start recovering.
I don’t buy any hope of a recovery until the economy stops shedding jobs. I don’t see anything else that can spark demand until that number gets better. However, I could see the housing market recovering before jobs do, only because of the near-complete lack of building going on, and the steady drop in home prices making owning a better deal than renting.
You might want to try another image Arell, the one you posted doesn’t have anything touching the 8,000 line.
I don’t know about the bottom of the stock market but for housing prices in this reagion, we are still far off from the prices bottoming. The sales volume might seem as coming off of a bottom as we are in a spring bounce currently and we might even see positive YOY numbers for next year around this time but that doesn’t mean the prices will stop falling. At least a year to go for them to stabilize.
Everett_Tom,
? Is this a post about 8,000 or “bottom” ? Do we have to “see” 8,000 for 6,547 to be “bottom”? Interesting.
The image is a picture of “the bottom”. I don’t think I’ll put up a graph showing 8,000 until it is more than a brief intraday position.
Great example of difference in expectations…
WaileaKid,
Do you think, maybe, that the picture in the post shows “the bottom” of the stock market? Or do you think that’s not possible given other economic factors?
I think what I hear you saying is the same as “bottom is near” in this post. IF prices are the same or higher a year from now, then you would agree looking back that now could be bottom. But you have to be a year away from bottom to say bottom. Is that right?
Jerry,
I kind of like that “Ardell- As we all know, Italians are supposed to be instinctive, not rational in their decision-making.”
It’s as good an excuse as any 🙂
I think you missed my point Ardell.
You’ve got an image labeled “Dow breaks 8,000 April 2, 2009” and the image doesn’t show anything breaking 8,000. In fact, as best I can tell, it doesn’t show April 2nd either, just April 1st. It _IS_ nit picking, but I’d really prefer a different title or a different image, as it doesn’t seem to line up right now.
As for the thrust of the post (you know, minus the nitpicking details like image/title combinations) I don’t have much for ya. I’m pretty sure we’re WAY away from a bottom on pricing.. maybe approaching one on transaction volume. But I don’t have any pretty charts or long thesis to back that up 🙂
That is a good question and it’s confusing because no one (at least no one I know) has seen what the market looks like in the future. We won’t really know what the bottom was for years.
However, considering the dismal employment picture, worries about AIG, mortgages, and the auto industry…I think we have a few more things to ride out before we can say the worst is behind us.
“The ball is round, the game lasts 90 minutes. That is fact. Everything else is pure theory.”
Run Lola Run
“Dow Crosses 8,000 in Broad Rally
Everett_Tom,
Fair enough 🙂
What I find interesting is that no one seems to want to call a bottom until, as Rafiki says “it doesn’t matter; it’s in the past”. I find that quite astounding, but it explains a lot. No one can be right in the present, by most people’s definition.
this whole situation reminds me of my dad, who had been predicting the current recession for the past twenty years.
I’m starting to understand why “news” is almost always bad news.
Calling the bottom in real time “bottom” is about where I think we’ll be 6 – 12 months from now. Are things still getting worse? Where are prices today based on where they should prices be based on fundamental factors (PE, price/rent, price/income, etc.)? What might cause us to deviate from those fundamental factors (intense recession, new credit standards, massive bank failures)?
To be honest, I don’t care about the “bottom.” I just don’t want to be terribly wrong. I don’t mind being 5 – 10 percent wrong, but I really don’t want to be 30% off the bottom either too early or too late.
Of course, you can’t ever know you’re at bottom until it’s passed. But I can look back and know that I used sound judgement to to either jump in or stay out. And in general, I think it’s easier to be a little late on marking the bottom that it is to be a little early. In other words, it’s really hard to call the bottom when you’re still falling — you might be right, but you might also be WAY off.
drshort,
I was just listening to Jonathan Miller on Fox News from several days ago:
http://matrix.millersamuel.com/?p=3916
If the reality is appraisers will only use 1 mile (I’m fine with that) and last 3 months (vs. 6 months) of comps AND cut the result by a self fulfilling prophecy of “down market”…well, that’s just sad to hear.
It will be interesting to note if any sales are closing at less than contract price, due to appraisal issues. If appraisers and lenders will only let prices go down and not up…why bother with a stimulus package?
As you’ve talked about, I’ve been using the appraised value as a big factor to judge listing prices. I discard it for recent remodels, but other than that, it’s fairly accurate in judging value (much to my surprise). Most of what I’ve seen selling quickly has been priced slightly below the 2008 appraised value. It’s been a lot more predictive than zillow/list price.
drshort,
It really is a good benchmark, (assessed value, not appraised value).
You can use it for remodels too. Just line up all of the sold property into groups. Keep all the remodeled homes together in one group. In fact you can divide the sold property into “yes I might have bought it” and “no I would not have bought it”.
Then divide the sold price by the assessed value and you will have your own personalized rule of thumb factor.
If the houses you would not have bought come in at below assessed value and the houses you would have bought come in at 1.17 times assessed value, that tells you a lot. You may find the remodeled homes falling more in the 1.24 times assessed value range. I think you’ll find that works better for you as a buyer, than adding dollars for improvements.
Each area will be different. If you start seeing a lot of property near each other falling into a different factor, you’ve likely crossed one of those imaginary lines into a “preferred market zone”. Then you can decide if it’s worth it to you to be on the high side of that imaginary line…or not.
Surprisingly I’m seeing one segment still in the 1.5 to 1.6 times assessed value range, but with all of a sudden, nothing selling. I’ll have to check over there again to see what’s happening.
Even if someone is not buying or selling real estate, collecting flyers from Open Houses and then going back to see where it sold in relation to assessed value, is a fun and educational exercise. Just divide the sold price by the 2008 assessed value. I don’t trust the 2009 values…so, don’t go there.
Hi Ardell, if you look at the House: $/Sq. Ft. graph on this page (http://www.redfin.com/zipcode/98117) it looks like the houses in 98117 are still being sold well above list price. Is this really possible?? It seems like most houses are sitting for a long time. I ask because a house just came on the market that I like but I expect the value to go down at least another 10% before it hits bottom. I don’t want to let it go if it turns out to be a good house but I also don’t want to pay a lot more than it will be worth 10 years from now. Thanks, Alex
Alexander,
I can’t make any sense of the graphs in that link, and they only seem to go to July of 08.
Current data for 98117 is 50% of homes sold recently sold within 30 days at 98.6% of asking price. That means you have a 50/50 chance of losing it if you don’t know how to quickly value it without waiting on price reductions. By the same token, if it is overpriced, you don’t want to jump at it either.
If you email me the address or mls# privately via email, and I’ll post my thoughts here. I’ll can give you my $.02 on it as long as you are not working with an agent and we don’t mention the property specifics on blog. There are rules about offering potentially contradictory advice. Real Estate doesn’t permit 2nd opinions under our ethics codes.
Hard to buy anything without a job.
I’ll call bottom when the jobs market comes back to where people can afford to spend and aren’t afraid of spending.
Which in Japan was about 10 years. We’re not Japan. We’re just doing what Japan did when this happened to Japan.
Alexander #20,
Thanks for sending me the address off blog. I will answer more specifically in an email after I show some property on this beautiful, sunny morning.
I post this response for the benefit of all readers.
My best guess is that property will end up being a short sale or foreclosure. You should be able to look it up on the King County Parcel Viewer to see what they paid for it. Current market value is below that, asking price is above that.
What you may not be able to see, that I can see, is that they did a cash out refi just after the peak of the market. If they hadn’t done that, and the lien was the same as when they bought it, the situation would be quite different than it is.
The asking price is pretty close to what they will need to “clear the table” but at least 8% to 9% above current “fair market value”, It could be as much as 15% more than what it will really sell for, once it turns into a short sale price as to asking.
It’s hard to determine if what they paid for it in 2006 was fair market value of the time, because it was not sold on open market. But if you find the 2008 assessed value in the King County Parcel viewer, know that as a short sale it could sell for less than that.
Unless someone overpays of it, it’s going to be short any way you slice it. It’s just a matter of whether someone is going to get it at a short sale price with or without that asking price changing. It’s likely going to be a long haul from now to closing on that one, unless someone pays that asking price, which I doubt someone will.
I suggest you watch it and NOT wait for a price reduction, as the owner can’t lower that price without saying “short sale” to the public at large. They may keep that asking price and deal with the short payoff while in escrow more privately, vs. as an announcement to the public in advance.
Given I have said this much, please do not post the address or anything that would reveal the identity of the property and seller. In the meantime, read everything you can get your hands on about short sales, including this post of mine:
http://www.raincityguide.com/2007/12/13/should-you-buy-a-short-sale-property/
As I said in the opening of this comment, I will send you more detail privately later today, after I show some houses here on the Eastside.
70Ford,
Not ignoring you…just have nothing to add to what you have said.