West Seattle Herald:

The_Tim

Remember all those sales Deejayoh was finding in West Seattle at or below 2006 prices? Well, the real estate writer for West Seattle Herald isn't letting the housing market get them down:

Housing demand 'spring-loaded'

Steve Shay wrote:

While it's no secret that the nation is taking a hit with increased foreclosures and decreased home prices, "Area 140" home prices have been relatively stable.
...
"There is now a suppression of demand," said James Tibbetts, a veteran realtor with Windermere Real Estate in Fauntleroy who grew up in West Seattle. "People will only hold back so long. But demand is spring-loaded and will burst. Certainly the press has caused people to put their plans to buy a house on hold. People who have money are waiting to feel more comfortable."

Despite the upbeat tone, they're clearly asking for trouble... they didn't capitalize and properly trademark-ize REALTOR™©®³∞.

rose-colored-coolaid

Is that spring loaded like those snake in a can tricks? You know, the ones that shoot out of the can when you open it.

WestSideBilly

I hate those things. The clown ones are even worse.

Alan

I think it is an accurate model. Supply/Demand equilibrium is not that different from the physical equilibrium of a spring. When prices are going up, speculation and fear of being priced out forever pushes demand away from its equilibrium point. At the peak of the cycle, demand is spring loaded to be too high. As soon as appreciating stops, that spring is released and demand starts dropping. Dropping demand means falling prices. Falling prices begin loading the demand spring below equilibrium. At the bottom of the market the spring reverses direction again.

Unlike a small physical spring, the RE demand spring moves very, very slowly. I very much doubt that it has reached the minimum point of demand -- although by definition the demand must be below equilibrium (for current prices) for prices to fall.

WestSideBilly

Sounds more like an overdamped spring/damper system than a spring.


Woops, the engineer just sneaked out.

Alan

The model I think it follows is an inversely damped (actively driven?)spring where the driving force is a monotonic function of how long an upward or downward trend continues. The shape of the driving function mimics a population s-curve so that at some point the system reaches equilibrium at one extreme before reversing the process.

Simply put the longer a bubble continues, the more people jump into it. At some point there are no more people to join the trend ends and people start exiting.

A bit more complex: Each agent in the environment attempts to estimate the return on investment. The estimate consists of an expected value and a confidence in that expected value. Agents with high risk tolerance enter the market with a low confidence in a positive expected value. Agents with low risk tolerance need high confidence. Confidence is increased through continued observations that match the current expected value.

Agents at the extreme high end of risk tolerance jump on every little investment that has a short term return. They get bitten by reversion to mean when bubbles don't form. But occassionally they hit it big when a bubble strikes.

Agents at the extreme low end of risk tolerance only get into bubbles near the very end. They lose their investment when the bubble pops. But they don't get into bubbles unless they last a really long time.