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June 4th, 2008

timing the market

There's a bunch of somewhat-quantitative research about why market timing (in the stock market) doesn't work so good. People have tried to use this by allegory in the real estate market (I think they might have missed the whole quantitative thing entirely), which mystifies me. It's struck me as really mindblowingly simple to spot real estate bottoms since my father first started pointing them out around me some time in the early 1980s. (Some time later, someone explained to me how interest rates impact housing prices, a concept that I think was and may still be beyond my father, but I'm not entirely certain on that particular issue.) Unlike stock market bottoms, real estate bottoms aren't fast and v-shaped bounces; they tend to be bumpy and go on for a while. Also, the return of appreciation lags the rest of the economy, giving people ample time to spot it happening.

Nevertheless, I've been charmed by phrases such as trying to catch a falling chainsaw (the earlier parallel was catching a falling knife). I mean, that's some imagery.

http://paper-money.blogspot.com/

Today Paper Money actually said out loud what R. and I have been assuming all along: it ain't that hard to buy at the bottom. And Paper Money backed it up with a Boston area graph (some others as well. I mean, these folks are hard core):

http://bp0.blogger.com/_ym8Q9yxUg34/SEWfBC5VbjI/AAAAAAAADh4/xR94zTMffds/s1600-h/bottomboston.JPG

The house we currently live in was one of 3 houses built in this town in -- wait for it: 1993.

Heh.

At least we know R. can time real estate bottoms.

ETA: Er, sorry. It isn't that hard to _identify_ when to buy. Putting together the right financial package to actually buy is a whole other problem that is extremely difficult to solve. Real estate bottoms reflect the fact that everyone is having trouble coming up with the funds (due to job loss, high cost of credit, impossibility of selling current house, etc.).