I wasn't wrong in '02, just early - Columnist Jon Lansner - The Orange County Register

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Saturday, April 26, 2008

I wasn't wrong in '02, just early

Columnist Jon Lansner revisits his 2002 column saying the housing market had peaked.

By JONATHAN LANSNER

The Orange County Register





Six years ago this week, right here in this column space, I uttered what at the time seemed to be unthinkable: Orange County home prices were peaking.



Well, well. Here we are today. Prices are plunging and buying activity is as slow as it can get.



And you know what: I'm tired of apologizing.



I wasNOTwrong in 2002. I was just early.



Please note that home pricing, as measured by DataQuick's median sales price, is back to early 2004 levels. I guess I was only off by two years.



Then came April 2002, when I revisited my O.C.-to-U.S. ratio on my five-year anniversary on this job. I discovered that a five-year Orange County home price rally had pushed our premium to a high level of nearly 3 U.S. homes costing what one local home did. Such high pricing had been last seen in 1989 ? roughly, the end of that boom era's home-price surge.



Layered on top of that hint of overvaluation in '02 was the lingering psychological hurt of the 9/11 terror attacks and the fog of a modest national recession.



Was it crazy then to think that the local real estate market might take a breather?



And should I have known that the Federal Reserve would next make money basically free while ignoring a total collapse in lending standards? These two factors, plus a myriad of other surprises wrapped around the concept of greed, weren't in my formula.
 
Which goes to show that you can have the fundamentals all correct and have the market still run against you. Particularly when you don't anticipate the availiblity of "free money" via CDO's.



Jon's comments fairly describe my attitude through the whole thing. If I'd be willing to gamble with the worst of it more often, I would make a bunch more money.
 
[quote author="lawyerliz" date=1209374549]So are prices going to drop below 2002?</blockquote>
Some areas will. I believe most will settle in the 02/03 range.
 
"I was NOT wrong in 2002. I was just early."



Uhhh, 5 or 6 years early <strong>IS</strong> wrong, Lansner.



That's just as bad as me saying, "Today is the bottom. Buy now or else."
 
seriously... some mkt timers are off by just a bit, and that alone can cause enough losses that you never profit even if you were right about the big picture. ridiculous C-Y-A by lanser.
 
Me in late 2002.



"This thing is overpriced. It's going to come apart just like 1988 and people are going to get hurt."



Me in early 2004.



"OMG? They just sold that shitbox 800 s.f. 2/1 near the train tracks in Orange for $505K! How are they doing/financing this?"



Me in late 2004.



"These lenders have lost their minds. I have customers who make $8 an hour and have no documentation (legal status) buying homes in Lake Forrest for $725k!"



Me today.



"I can't imagine how bad this is gonna hurt when it unwinds to the bottom."



Was I wrong too? I never claimed once we had a top. I'm smart enough not to call tops and bottoms. I can see trends pretty well though.



Don't underestimate how bad this is going to get. There's an article in the OCR today about how they are getting droves of new renters applying for rentals, yet..........they have the worst occupancy rate in 13 years in Orange County, and it's about to get a lot worse with a bunch of new supply coming on just in the Platinum Triangle. These are stone facts. Undisputable.



There is no white knight kids.
 
[quote author="IrvineRealtor" date=1209381867]"I was NOT wrong in 2002. I was just early."



Uhhh, 5 or 6 years early <strong>IS</strong> wrong, Lansner.



That's just as bad as me saying, "Today is the bottom. Buy now or else."</blockquote>


Prices were inflated in 2002, but the market still had momentum, and the lowering of interest rates -- which was predictable in 2002 -- were bound to cause some additional price increases.



I remember being "wrong" in 2004. The market should have topped then, and if it was not for the introduction of the Option ARM and the total obliteration of lending standards, 2004 would have been the top. The collective insanity of a financial mania is hard to predict because it is not rational. Irrationality can persist for extended periods of time, and there is no way to predict when it will end.



I remember the moment I knew we had finally reached the top. I was consulting for a major homebuilder when I was told they experienced a one-month decline in home sales of greater than 60% in June of 2006. It was the signal I was waiting for, and I knew immediately what it meant. Prices rose in some markets and in some market segments after that, but rising prices on greatly diminished volume is the classic sign of a real estate market top.



The mistake Lansner made was not looking for confirmation of his prediction. I was quite comfortable calling a top in early 2007 when I first published on this blog because I had already witnessed the confirmation of it. Lansner correctly recognized the signs of a bubble inflating, but his timing of the top was all wrong because the telltale dropoff in volume had not yet occurred. In that sense, he was clearly wrong.
 
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