It's amazing how much this is like trading. The FBs (f*cked buyers) are starting to sell outside the spread. This is feeding downside momentum by causing other shockingly undercapitalized idiots to ditch their flips/go bankrupt.
Now, in the stock market, in times like this, traders might try to "catch the falling knife" by buying at the lower prices with the expectation of profiting from the "dead cat bounce" as other traders go bargain hunting.
How do you know when the downside momentum is slowing? In the case of real estate, how much inventory is out there and how many days have houses been on the market? If these numbers are increasing, consider sitting on your cash and letting the torrent of blood in the streets keep rising as prices continue to fall.
Another way of visualizing price momentum (up or down) is to draw two moving averages on your price data (one shorter and one longer), I like 8 and 13 period moving averages, for example. As the short period MA line moves further and further away (up or down) from the long period MA line, you have increasing momentum (up or down). As the short period MA line goes back toward the long period MA line, you have decreasing momentum.
Why is it called "catching a falling knife"? Because there's a good chance that, instead of catching the knife, you'll get killed by it! Sometimes there are many more apples waiting to be shaken off the tree than you realize. Right now, for example, Joe and Jane Six Pack are still in denial. Once they find themselves hopelessly upside down, ARMs unlocked, they'll just walk away, leaving the keys to the front door in the mailbox. Any recovery could see Joe and Jane Six Pack (or the banks) using the opportunity to sell right into the wave of bargain hunters. Prices then take another leg down as the bargain hunters---knives protruding from their skulls---become the new crop of f*cked buyers.
After crashes, prices tend to stabilize (sideways movement, if you look at them on a chart) and volume drops off. In the example above, the moving averages flop on top of each other and move sideways with prices. Sellers are exhausted. Buyers are exhausted. Traders call this "flatlining" after a stock has crashed.
Eventually, prices start to creep up, along with volume. And off we go again on the boom/bust cycle... Well, assuming the entire economic system doesn't crash along with real estate:
Just how weak is the Boston real estate market?
We got an idea yesterday. And if you're looking to sell your home in the near future, the news isn't good.
Brand-new luxury condos downtown saw hundreds of thousands of dollars wiped off their value in the Hub's first public real estate auction in a decade.
The 31 condos up for sale in the Folio building on Broad Street sold on average for 30 percent below their asking prices.
Some barely fetched their minimums.Related: Home Sellers Learning Day Trading Skills
posted by Kevin at 4:58 PM