Monday, April 6, 2009

The Bear has a snooze...

Things are definitely looking a little brighter- in the financial markets and in housing.

The question bears have to ask themselves is whether this is just a bull trap and we continue the down-trend, stablise or even whether we will blast off from here and hit new highs.

Either are possible scenarios. However the graph in my previous post below, has defined the bubble psychology and prices, pretty accurately so far, and a blip up would be expected right about now- before resuming the down-trend.

Why do we get a blip up after the first big drop down? Due to those who have been left out for the last few years, and have been kicking themselves. They were smart enough to avoid buying on the final run up, but are still anxious that they could miss out if they don't get in on this drop.

To add to the fire, interest rates have come down significantly and we have seasonal strength. The result is a self-fulfilling bounce, which causes folks who are anxious to finally take the plunge. I suspect some sellers are thanking their lucky stars to be able to unload at what are still very good prices.

Anyone who bought before 2006 is probably still sitting on a profit. However as I have noted before, things usually go down a lot faster than they went up in a bubble. We have erased over two years of gains in less than a year.

Where to from here?

Now it gets interesting. If we did indeed pass THE top last year, then this blip may last another month or two. The normal seasonal pop comes in Feb- May and then we could resume the down turn, with MOI and over 90 day listings increasing rapidly.

If this bubble is the first one in history not to drop dramatically after topping out, then we can expect a gradually stabilising market, with sellers holding out until inflation and a stronger economy supports their prices.

Which will happen? You know which side of the fence I'm on. However my opinion and a loonie wont even get you a coffee. The critical factors will be jobs and the worldwide economy.

If jobs continue weak then domestic demand weakens. If the worldwide economy deesn't fix itself soon, then the overseas demand drops.

I suspect the bears will continue to be tested for next two months. Of course they have been tested for the last 4-5 years, so what's another two months!

June will be the important month.