Visualizing Emotional Collapse: From Euphoria to Despondency

by | Jun 7, 2011 | Headline News | 37 comments

The good folks over at Financial Armageddon ask Are We Half Way There? with respect to the real estate market and cite an article from the News Observer that gives us some insight into would-be home seller sentiment:

Although Donna Roberts’ Cary house is for sale, she was not among the hundreds of Triangle homeowners who participated in a nationwide open house event over the weekend.

Instead, she used the weekend to scope out the competition, touring homes in her Lochmere neighborhood that are priced similarly to her own.

Roberts’ house has been on the market since late March. Initially listed for $825,000, the house is now at $779,000 after two price reductions and just four showings.Click here to find out more!
Fearing further discounts, the neighbors on her cul-de-sac are now upset at her for selling. “It’s tough now,” Roberts said. “But housing prices could go down even further.

“There’s no good time to sell right now, unfortunately.”

After years of assuming the housing market couldn’t get any worse, a growing number of Triangle homeowners and agents are now resigned to the fact that no one seems to know when it will hit bottom.

We’ve frequently suggested that the real estate market is nowhere near its decline even though home values across the country have seen price drops of nearly 30%. While The Fed attempts to ‘stabilize’ housing by printing more dollars in the hopes that prices will not deflate, the policy, as evidenced by recent home sales numbers and values, clearly indicates that one of the largest bubble collapses in the history of man kind is farm from abating.

For those of our readers who would like an example of how bad things can get in a market that was supposed to go up for ever, we need only look at the recent historical example of Japan, a country that saw real estate declines of 75% (inflation adjusted) since their bubble popped in the early 1990’s. It is for this reason that our outlook for the US housing markets is dismal, and if Japan is any guide, we will likely see a 25% to 50% decline in prices from here as the pendulum swings from Euphoria to Despondency.

A great visual of where we are today and where we’re headed in terms of investor emotion and market sentiment is provided by Russell Investments:

We all remember the euphoria and anxiety around the time of the real estate bubble pop in 2007 and 2008. Speaking with neighbors and friends who own their homes, some of whom are trying to sell their homes right now, it becomes fairly clear that  the chart above has pegged the current emotional state of investors almost exactly.

Many are still in denial, believing that those trillions of dollars in bailouts and the rhetoric from Washington will save their home values, jobs, and retirement accounts. A good number, especially those who have lost their jobs or have had their homes on the market for several months, are coming to the realization that things may not actually be as has been presented by state sponsored media. The fear and depression are setting in, and as this crisis unfolds – be it with another stock market crash or continued inflationary melt up – panic will become the emotion du jour.  Eventually, people will give up, surrendering themselves to the realization that life as they know it has changed drastically. Most will never experience the booming lifestyles of the middle class nouveau riche of the late 20th century again in their lifetimes.

When the “Hope” bumper stickers start being scraped off your neighbors’ vehicles you’ll know that we have reached the bottom of the cycle – despondency. You may also recognize this bottoming out by mass protests, civil unrest and riots, as this particular crisis is not a typical bubble bursting. It affects not just real estate, but every aspect of our economy including employment, credit lending, production, consumption and national debt.

There will be blood in the streets (figuratively and probably literally). Realizing and accepting that this is the natural progression of events given the situation in which we find ourselves will make it much easier to understand, cope, and prepare for what’s happening around us and what’s coming our way.

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    37 Comments

    1. Chuckles

      The housing market still has a long way to drop. Houses were overpriced for decades and it’s going to take some time for prices to come down to where they should be. Unfortunately a lot of people bought when they should have waited.

      • Odd Questioner

        Indeed.

        I’m glad to be sitting on the outside of that game, and will have enough to purchase what I need during the likely trough (which at this rate will be 5-10 years off).

      • 11 Bravo

        So what is the link ? And what is it about…..?

        • michelle

          webbot interview

    2. Anonymous

      I pull out (unleash) my BIG black (chisel tip) Sharpie permanent marker when I see a BO Hope/Change “BS” bumper sticker.

      • Marc

        WHAT A GREAT IDEA! I’M OFF TO BUY A 12 PACK!!

        • Anonymous

          Get the industrial one with a neck chain and you will be happy! Don’t leave the house without it…… I un-reform one car owner at a time. Got tired of buying the pub stickers at the the weekend gun shows.

          • Odd Questioner

            Unfortunately, here in Portland (OR), I’d have to buy a frickin’ *case* of them… a week.

    3. MadMarkie

      It isn’t just the residential property market that is ‘taking-it-in-the-shorts’ right now; the commercial real estate market is also starting to ‘tank’ in a big way. The major South Florida Construction Co., the one that I used to work for; is starting to see projects not only cancelled before they start, but also seeing projects halted half way through to completion.

      You can keep doing the ‘hopie-changie’ dance just as fast and as hard as you can if you want to ….. but nothing is going to change for the better. Our economy is long past the point of no return on the way to the bottom.

      Some of the things that might help the United States return to her former position of greatness are:
      1. Invite the UN to kiss our butt, resigh from the stupid, impotent organization and inform them to begin meeting someplace else.
      2. Formally declare bankruptcy on all of our foreign debt. “Sorry dudes; but we just can’t pay you, not now, not ever.”
      3. End the importation of all foreigh made goods into the US. If it isn’t made here, learn how to make it here or learn how to get along without it.
      4. End all forms of foreign aid immediately.
      5. Bring all US troops home immediately from wherever they are stationed around the world and stop all the stupid wars we are involved in. Start minding our own business for a change.

      Sadly, this will never happen. We, as a country, will continue to pretend that we are the world’s last ‘superpower’ right up until the bitter end.

      • Gods Creation

        Markie, you forgot the most important one

        KILL all the bankers.

        • MadMarkie

          @ Gods Creation ~

          I haven’t forgoten anyone my friend. God will of course sort this all out before he is done with this world. My personal belief is that God has greed right up there towards the top of the list of things that he hates the most. The banksters will all pay a heavy price for their greed and lust for money; neither you or I will have to lift a finger against them. Most banksters have few to no practical skills besides playing golf/tennis and pushing papers ….. and those won’t be a skills that are in a very high demand in a post SHTF world. We can just continue to ignore them and let them all pay according to their own individual misdeeds against the rest of Gods Children.

          God bless and the best of luck to you and your family in the tough times that are fast approaching.

          • Gods Creation

            Agreed.

    4. manos

      If you think that U.S. is in trouble, wait to see what will happen to the Chinese regarding housing and real estate.
      You cannot keep up with increasing development for an eternity.
      Somewhere, somehow there is the peek, and then there is the bottomless pit.
      And to be honest, i really don’t give a s…. about those communist-fascists.

      • Odd Questioner

        I agree, but there’s one bit to keep in mind:

        The Chinese almost always deal in leases, not mortgages. Private ownership of property doesn’t really exist – you’re only owning the right to use whatever you ‘buy’ as you see fit (the State there ultimately owns all property. They only opened up the possibility in 2004).

        I can however agree with you about the speculations and economic bubbling on those use-rights.

    5. SmokinOkie

      Wyle E. Coyote economic recovery plan:
      I have an idea. (proceed cautiosly, this rarely happens and outcome is not guaranteed) How about if BO would just have the corp media play that FDR quote several times each day then the country would recover…”We have nothing to fear but fear itself.” Repeat 20 times a day on all radio and tv stations til symptoms of poverty and homelessness go away.
      More than likely the media would get confused and play something else, thereby feeding the fear instead of relieving it….
      “Scuse me while I whip this out.” or
      “You cant HANDLE the truth!” or
      “Get your stinking hands off me you damned dirty ape!”
      Imagine the panic in the streets! It’d be like an earthquake…or a tsunami…or a Lakers victory… On second thought, scratch that idea. Let’s just keep muddling through til we fall off the cliff. At least that’s something ‘ol Wyle E is familiar with!

    6. Anonymous

      Beep Beep! (truck backing up) The only thing shovel ready was Senator Kennedy.
      Detective Fowler: You know anything about this?
      [unzips his pants]
      Detective Fowler: Look. See that red spot over there? That wasn’t there this morning. I checked. You know what it is?
      Deuce Bigalow: Maybe it’s a rash. Something you got from jogging. How the hell do I know? Get it away from me.

    7. Anonymous

      Hedley Lamarr: If you will just sign this, President. Right here.
      President William J. Le Petomane: Yes, yes. What the hell is it?
      Hedley Lamarr: Well, under the provisions of this bill, we would snatch two point five million newly defaulted homes, which we have deemed unsuitable for their use at this time. They’re such children.
      President William J. Le Petomane: Two point five? Two point five? What’ll it cost, man, what’ll it cost?
      Hedley Lamarr: [brings out a carton of paddleballs] A box of these.
      President William J. Le Petomane: Are you crazy? They’ll never go for it, they’re not electric. And then again they might. Those morons… they’ll love them when they can’t afford electricity!

    8. King Crazy

      I have to laugh at these idiots that think a house is an investment. All it is, is a roof over your head.

      • Ben Dover

        Always was.

    9. A Dodgy Bloke

      Well it could be worse.

      • NetRanger

        It could? How? Please elaborate.

        • BJ

          the rich peoples houses could fall as high a percentage as the poorer class peoples houses…read the article I posted above

    10. Patriot One

      I think the masses are only at the anxiety stage. They are just now starting to think something not right.

      If I’m correct we have a long way to go. Think 1968 housing prices. We are in a downward spiral and month after month its getting wider and deeper.

      As it gets wider and deeper more and more people are sucked into it.

      Less money = less spending. Less spending = less manufacturing. Less manufacturing = less jobs.

      • JANE

        Patriot One, sorry You got it backward.

        LESS MANUFACTURING –> LESS JOBS –> LESS MONEY –> LESS SPENDING.

        MORE DEBT –> MORE BANKRUPTCY –> MORE FORECLOSURE –> MORE POVERTY –> MORE CHAOS.

        Can you see it now?

        • Patriot One

          Sorry Jane, but it all starts when people spend less. It can go round and round, but I’m of the belief that the trigger was high gas prices back in 2008.

          Not that we didn’t have decades of bad government, Welfare, Medicare, Medicaid, CRA, NAFTA, Bank deregulation and out of control tort lawyers.

          The high gas prices started a cascade that got completely out of control and one by one the domino’s started falling.

          Its all leading to being dependent on government. As Reagan said government isn’t the answer to our problems, government is the problem.

    11. ThinkTime

      Seems to me the inverse corollary of home mortgage interest rates and home prices will be quite something to observe in the future. If homes are not selling now, just wait ’till rates rise. They certainly cannot go appreciably lower. Then add off the books foreclosures to the market over the next few years… not good. Just something to think about.

      Then get ready.

      • Durango Kidd

        You are right about that. Next year at this time, Sarah Palin’s new home in North Scottsdale for which she paid $1.6 million, (8,000 sf +) ought to be worth about half.

        Next year will be a great time to buy the home of your dreams if you have the cash. Buy gold.

    12. scott

      Sucks – I own2 homes and am losing money on them daily. Being down 35k on
      one and after a quick zillow check about 100k on the other. I kept telling the wife we should have rented (she is in denial) and I am fugged.

    13. Jim

      I paid 139k in December of last year. It could go to 10k I don’t care…..I only owe 30k now and that’ll be done in 5 yrs…..got my garden, well, solar powered pump, and good neighbors!

      • sam

        ^^^ agreed

        we bought a duplex for $115k in 2008. it’s devalued about 15% since then. we pay only 4.5% apr. counting rents received, our housing (mortgage, insurance, taxes) costs about 16% of our takehome (expenses for maintenance, now included); i’ll let people do the math, but we have a pretty modest income.

        i’m not worried, yet. we’ll keep living here because it’s cheap and we like our community. next year, i may enjoy swapping out some precious metals for some super, super cheap land.

    14. michael

      You would think by now people would realize the market is over priced and not buy a house. That there is any activity selling houses is remarkable. Most people do not realize how far down the price of their house is going to go before it stabilizes. There can not and will not be a good time to buy a home. Until prices have dropped seventy five percent from their high- houses will be over priced. The shocking truth is that the cost of materials to build a house cost more than the house would be worth. Until the manufacture’s of housing products drops their prices to the seventy five percent level, houses will not be worth building.

      You have {but most will not accept the truth} the same environment going on with gold and silver as you had with the housing market. The people that own all the money in the world inflated the housing market just as they did the dot.com just as they did and are the stock market. Just as they are gold and silver, just as they are oil and commodities. Their plan is to steal all the money in the world they have and are succeeding. Anyone buying a house, buying stock, buying gold or silver is doing nothing more than given the elite their money.

      They are the people that own all the gold, they confiscated it years ago. They have inflated the price of it and now the public is buying gold and silver to protect their worth. As soon as they decide the price of gold and silver will drop. You will own gold that is worthless, and then it will be confiscated. The same as your guns that are registered.

      Most people can not get it thru their head there are no jobs there will never be any jobs. The largest employer was the housing market, and everything affiliated with it. The housing market is burnt toast. People do not have money they never again will have money. It is the intention of your government to bankrupt the entire country.

      • sam

        a few links would improve my ability to follow the logic of your rant, but i agree with your initial conclusion about how there could be so many people intent on buying now.

        regarding gold and other commodities, the reality of the situation is that it doesn’t matter who owns the gold, just that there is a gold market. the size of the amount of gold doesn’t cahnge, and neither does the fundamental dynmaics of the market. might governments pump and dump gold? sure! might i sell my gold at some future point for profit? sure! might PIMCO or John Paulson or some other gold heavy fund do the same thing? sure!

        that’s how markets work. investment gains are zero-sum. that’s why you’re comment regarding there being no money made in housing is false. it’s impossible for someone to lose value without someone else gaining value in an opposite way. the banks are taking their sweet time unloading foreclosed property (i believe) because they believe they will be able to sell these home for tremendous profit at some point in the future.

        now, to address your concerns about the manipulation of markets, that is a risk in any market. systemic manipulation is somethign that is actually accounted with variables within economic models, just as walmart always assumes there will a certain level of shoplifting.

        lastly, regarding jobs, they’ll come back, just not a wage, which we (in 2011) consider to be a living wage.

    15. Maddie's Mom

      sam,

      How do you see the jobs coming back?

      • sam

        with far lower wages. labor costs in asia are increasing at the same time that labor costs are decreasing across the industrialized world. employers are getting very smart at using contractor positions to skirt giving benefits, etc., which is further driving down wages.

        i think that eventually (… i’m not saying this is right aroudn the corner) american labor will be competitively priced with other developing nations.

        • manos

          They created the conditions for tough unemployment,they took homes, dignity, souls, and now they will offer us their suggestion:
          Take 200 per month. Outside we have 2.000 waiting for the position.
          Finally Sam, we will end up producing luxury goods for the rich kids of China, and Russia.
          Is it a sci fi scenario? I’m not sure anymore where the dream ends and reality starts.

          Be safe

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