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August 6, 2009

Demand Or Anticipation vs Real Demand

-- by Dave Johnson

Quick question - are we seeing demand or anticipation of demand?

I am hearing the it is mostly speculators buying up the foreclosures, because they think they "see a bottom." So they are anticipating that regular people will start buying again and "things will get back to normal." And by normal they mean housing bubble, where you get rich buying real estate and sitting on it a few years.

This is anticipation of demand, not demand. It's also why you see a "dead cat bounce" when prices drop in any bubble. People are used to the bubble, and when prices drop they think things will "get back to normal" and start up again.

I wrote about this psychology in April, in Today's Housing Bubble Post -- A New Wave Of Foreclosures and Price Drops Coming,

A story:
In 1999/2000 I had a bunch of stock in a dot com. It made its way up to $35 a share. When it fell to $30 then $25 then $20 I held on because it had just been $35. When it hit $12 I thought it was really cheap but when it hit $.50 I thought that was too high. It landed at $.05 but then the company went out of business.

Think about the psychology of this. When it fell to $12 I thought it was cheap because of how high it had been but when it hit 50 cents a share I thought it was too expensive because I had left the past behind and I could finally see where it was GOING. And that is where it went.

It seemed cheap at $12 but too expensive when it got down to $0.50. Think about the psychology of that. 'Cause we all know how well the speculators have been doing, right?

By the way, prices have only gone down since I wrote that in April.

So, is there any reason to believe that regular people will start buying up real estate again, and prices will start back up?

Posted by Dave Johnson at August 6, 2009 9:53 AM


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