Subprime markets were in despair stage of housing bubble in 2011

So many buyers were so certain prices would rise 10% or more per year forever. Those same kool aid intoxicated fools are now underwater, trapped behind their over-improved walls, eating off their priceless granite tops, wondering how did it come to this? The hope of a recovery is dissipating with the double dip in home prices, and pessimism about the future is pervading the land. Those are exactly the sentiments one finds at the bottom of the real estate cycle.

Psychological Stages of a Bubble Market(1)

Housing is in last phase of ‘bubble,’ expert says

Dec. 2, 2011 05:25 PM


Nishu Sood, director of Wall Street’s Deutsche Bank Securities, used the term “revulsion” to describe the current phase of metro Phoenix’s housing market.

“Revulsion,” as in many people are averse to the very product that got the nation in trouble in the first place.

Revulsion is another way to describe the conditions of despair. Everyone who owns an underwater house wishes they didn’t, and all hope of attaining riches is lost.

The despair stage is actually the best time to buy real estate, but it requires the most patience. First, part of the reason for despair is because nearly everyone knows prices are not going up any time soon. That perception of the market is not wrong. Prices don’t rise quickly when the despair stage passes. In fact, prices may languish there for years or even decades. What makes the despair stage an enticing buying opportunity is the current cashflow or savings over renting.

Sood was the lead speaker at the Scottsdale-based Land Advisors’ third annual housing forecast for the Phoenix area, presented to a group of the region’s top real-estate executives.

He was quick to point out that revulsion was the last phase in the “bubble” cycle before recovery for the region’s housing market.

The bottom occurs in the despair stage, but the “recovery” is rarely a robust increase in prices, particularly with the overhang of supply.

He said if Land Advisors would have asked him to speak about Phoenix’s housing market in the years between 2006-10, everyone attending would have needed a shot of bourbon to make it through his negative evaluations and projections.

This week, Sood said he felt more positive about Phoenix’s housing market and its oncoming recovery than he did about many other parts of the country.

Yes, both Phoenix and Las Vegas are much closer to the bottom than Orange County. We have not reached capitulation here, although recent price drops are showing those signs. The coastal areas are still in denial.

That’s something that made the executive sitting next to me smile with relief. This is the same man who brought in a Corona at the start of the 3 p.m conference because he thought he would need it to get through another negative forecast.

Sood’s evolution of the housing bubble includes these cycles:

A change in the mortgage business and upgrades in technology during the 1990s made it easier to make and obtain loans.

Upgrades in technology? LOL! Financial innovation, right?

In 2002, home prices started to climb, though most people were more concerned about stocks.

By 2004, housing euphoria had begun, and home prices were soaring.

Then, in 2005-06, came the explosion of the housing market. One later speaker said that’s when “anyone who could fog a mirror with their breath could get a mortgage to buy a home.”

In 2007-08, the painful market reversal hit. Some had expected it, but few were prepared for its carnage.

The financial crisis followed in 2008-09. It continues to shake the


And the current situation: revulsion. Sood said many people now are distrustful and averse to housing.

But, he said, the next and, one hopes, the last phase of housing bubble will be the


Speakers also included Land Advisors CEO Greg Vogel, Avatar Properties President Carl Mulac, Cromford Report founder and analyst Mike Orr, and the CEO of homebuilder Taylor Morrison, Sheryl Palmer.

None of them believes full recovery will come in 2012. But most agree it could start next year and be in full swing by 2014.

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I think the markets which have been totally crushed including Phoenix, Las Vegas, Riverside County, and other fringe markets will begin to recover in 2014, and the pace of new construction should pick up considerably by 2015. Many of the developers I know are making plans for that end. We have been only building homes at the rate of replacement for the last 4 years. By 2014, we should have absorbed the housing stock from 2003-2007 through foreclosure and resale. It’s always darkest before the dawn.