real-estate bust MUST be deeper than anyone predicts

[sniglet]

When I read all the predictions for a "bottom" to the real-estate downturn I can't help but remember the calls for a "top" over the years. I recall stories in 2000 about how there was just no way prices could get much higher in California, and that there was certainly going to be a real-estate crash soon. Yes, prices kept right on climbing to levels that not even the most bullish of experts would have predicted at the time.

Now we find ourselves in a situation where "experts" are trying to predict where the bottom to our downturn will be. All sorts off statistics, and historical patterns, are cited as support for all manner of ideas about where, and when, prices will stop falling. However, if even the bulls were dumb-founded by how far the bubble extended, I wonder if the bears might not be surprised by how low things will go now?

In fact, maybe the whole point of bubbles (and subsequent busts) is to achieve such wild extremes that almost everyone throws in the towel. The expansion won't stop until almost every bear has given up hoping that prices will ever go down again. The crash won't stop until every bear has already jumped into the market at some point, thinking it a "bargain", only to get their heads served on a platter by even more drastic price drops. I vividly recall all the "value" investors who jumped into tech-stocks in 2001 after they had dropped 50% to 80%, only to see many stocks lose 90%, and even 100%, of value in some cases. As long as there are still efforts to raise funds for "vulture" real-estate investing (as there are now), then we still have a long way to go before hitting bottom.

One thought that bears considering is that bubbles (and busts) are driven far more by the emotions of fear and greed than by any type of rational evaluation of markets and prices. Just as there was no possible way to justify the valuations of properties at the peak by a rational analyses, there will likely be no way to justify the valuations at the bottom by a rational analyses either. Thus, any attempts to use inventory, sales volume, or other statistics to try and divine the market direction are almost certainly to fail.