bostonbubble.com

GenXer · Joined: 20 Feb 2009 Posts: 703

Pros are too arrogant, and they always get it wrong in a grandiose way (banks and others).

nickbp: Unfortunately, house prices are just like stock prices (that is, in aggregate), and have large sudden moves. You may not see the index price reflected in your house price, but its there when you try to sell it. With stocks, there are buys and sells for the same security, and if an index is going down, usually those securities have more sells than buys. It is the same with houses. Unfortunately a single house, as you correctly pointed out, is not bought and sold multiple times, so you can not base your understanding of prices on a few transactions. An individual house can sell for more or less, but in aggregate, the price movement follows the index (or creates the index). As far as your perception of 'momentum', or any other technical trading term, its plain false. Real estate prices exhibit certain characteristics which are common with those of the stock market, despite apparent differences. Therefore, your perception of momentum is just that - a perception. Trading on perceptions not backed by solid out-of-sample study is called gambling, and is done daily by many people trying to make money in stocks and real estate. I say, good luck to them.

JCK · Joined: 15 Feb 2007 Posts: 559

Agree w/GenX on this point.

I didn't see anyone confidently predict the peak in Boston market in 2005, nor have I seen anyone accurately predict the price trajectory since that time.

I don't think anyone here can tell you how much further real estate will fall or when it will stop falling.

I think the people who've been arguing fundamentals such as price/income ratios and rent/price ratios are on the right track, but it's important to understand that these numbers aren't predictive of what will happen or when it will happen. A rent/price ratio on a particular property only tell you whether it's cheaper to buy or rent that property right now, and can give some idea whether it's a good idea to buy or not. No one knows with certainty what will happen on either side of the ratio in the future.

nickbp · Joined: 26 Feb 2009 Posts: 75

GenXer · Joined: 20 Feb 2009 Posts: 703

nickbp: JCK is 100% right on this one. The math tells us the opposite of what your intuition seems to tell you. It is a lot easier to make a guess, but your chances of guessing right diminish with time, and diminish exponentially at the very best. Which means that the further away you try to guess, the less likely you are to guess right. I didn't invent this, I'm afraid, but this is a simple property of the random walk model, which although incorrect (i.e. it underestimates the price moves by a lot), is still a good model to try to understand what is going on with all kinds of prices which exhibit stochastic behavior (i.e. random vs time).

balor123 · Joined: 08 Mar 2008 Posts: 1204

You know people are momentum traders not from observing movements in the market but from observing market movers.

nickbp · Joined: 26 Feb 2009 Posts: 75

GenXer · Joined: 20 Feb 2009 Posts: 703

Housing market behavior is described by the same math as the stock market behavior. Therefore, regardless of what anybody says about or sees in the prices, the housing prices behavior is exactly as I described before. It is not predictable. I still can't figure out where this information comes from - about perceived momentum and/or volatility. The math is clear (or unclear, whichever way you'd like to put it), that there are no patterns in the data that can be exploited, because the data is random. Unpredictability is one of the properties of power laws. Anybody can believe what they want, but it is impossible to dispute a paper which contains a well-analyzed data set showing that housing prices, like all the other prices can not be predicted.

balor123 · Joined: 08 Mar 2008 Posts: 1204

All markets can be described by math but they aren't governed by it. They are all models and models can become inaccurate or break down, including the laws of physics! No one can predict with certainty who will win a poker hand but good poker players tend to do better over time. The same exists for sports. Tiger Woods is a great golf player. I can't tell for certain if he'll win any game but he tends to play better than other players. The same even exists for investing. While the number of people who can reliably invest with greater than expected returns diminishes with time, there appears to always be an investor who can beat the odds (I think Buffet has the best record at the moment but there are some people who have a 20 - 30 year track record as well). Just because there is noise doesn't mean there isn't also a signal and we can discuss the known portion and hope that the unknown portion remains insignificant, which it certainly is at times.

GenXer · Joined: 20 Feb 2009 Posts: 703

Real estate prices are not predictable, near or long term. Everything else is a conjecture that needs to be proven.

nickbp · Joined: 26 Feb 2009 Posts: 75

nickbp · Joined: 26 Feb 2009 Posts: 75

GenXer · Joined: 20 Feb 2009 Posts: 703

nickbp · Joined: 26 Feb 2009 Posts: 75

Actually, I'm starting to see what you mean. For example, I imagine it was a lot easier to sell a house on the week before the September crash than it was to sell on the week after, seasonal effects aside.

GenXer · Joined: 20 Feb 2009 Posts: 703

The problem is, we don't know unless you specify a house. I'm thinking of an index of real estate rather than a particular house. In some places some houses sell faster or slower, better or worse, before September or after, etc. But when you take an average, in aggregate the behavior has a pattern (i.e. after the fact, that is), the prices fall, the sales fall, etc. This is not true for certain neighborhoods, as you noted, but its true in general for MA for example. This is why I refrain from talking about specific houses or towns because its pointless - there are always stocks going up when the market crashes 50%.

GenXer · Joined: 20 Feb 2009 Posts: 703

You may think that house prices dont go 'turkey' the same way AIG stock does, but in fact they do! Think of foreclosures as turkeys. When somebody can not pay for the house, they lose it, and possibly a big multiple of their investment with it. I still can't believe people think investing in real estate is safe given millions of foreclosures, and more to come. Just because somebody lost their job and then lost the house doesn't make them stupid - maybe it was a great investment, but we wouldn't know it until 20 years after. The problem is, they didn't have the cash to make it last.