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From Here to There, Part 1

It has been a couple of weeks since I've written so I have some catching up to do. In a previous post, I discussed what a real estate recovery might look like. Here, I will begin to share my thoughts as to what must happen to get from here to there.

First--where is "here"? Here is a couple of years into significant downturn. The market peaked about two years ago, stabilized for awhile at the top, and has deteriorated since, with a rapid acceleration in the deterioration since last September. Since the new year, it appears as if things are getting a little better. News stories have reported sales growth in the markets which fell first and hardest. Locally, I have also seen some improvement. Buyers are still making "lowball" offers but Sellers are beginning to realize significant concessions are necessary to sell their houses. I believe this is a sign prices are beginning to reach an equilibrium level, which is step one. This leads to step two in getting to "there."

I am a firm believer of the theory that life, in general, follows cycles. One of the most fundamental of those cycles is the financial cycle between fear and greed. You most often hear this discussion relating to the stock market, but I believe it applies to financial matters in general. The old saying is the the time to be greedy is when the public is fearful and fearful when the public is greedy.

I think we have undergone a prolonged period where the public was "greedy" in all things real estate. You had people flipping houses (and popular TV shows glorifying it), building houses with no prior experience, and generally believing the real estate business was "easy money." The cycle peaked in 2006 and I think we are certainly now in "fear territory." What I am not sure about is whether or not the "public" is in a cyclical downtrend towards peak fearfulness (i.e. panic) or we are past the trough and moving into a less fearful period. What I do know is I am starting to see people start to look for opportunity (i.e. the smart money being greedy when everyone else is fearful.) This is what I think is step 2, and is a great sign which has been notably absent during the past year.

I will write about the final and most important step in reaching recovery, together with a huge wild card, in Part 2, later this week.

Categories: Real Estate

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Bayer & Black, P.C. - Fairfield County Attorney

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Wilton, CT 06897

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195 Danbury Rd., Suite 160 P.O. Box 459 Wilton, CT 06897