Interpretation of market signs in the New Testament and today
“The housing market is coming back!! Did you see the news last night? The Fed and Obama say the recession is over. They’ll be buying my house in no time!” (Charlotte Owner)
“…When night comes, you say: ‘The weather will be fine, because the sky is red’, and in the morning: ‘Today there will be a storm, because the sky is red and cloudy.’ You know how to interpret the appearance of heaven, but you cannot interpret the signs of the times.” (Jesus Christ, recorded in Matthew 16:2-3)
In the Bible, one of the frequent questions Jesus was asked by the disciples was how they would know that the end of the world was near and when he would return to reign on Earth. Jesus did not back down from the question and gave them telltale signs about what to expect. “You will hear of wars and rumors of wars, but see that you are not alarmed. Such things must happen, but the end is yet to come. Nation will rise against nation, and kingdom against kingdom. There will be famines and earthquakes in various places. All this is the beginning of birth pangs.” (Matthew 24:6-8)
Jesus himself gave instructions on what signs to look for before his return, but what about the “signs” that financial experts say to look for that will signal the return of the housing market? They are all over the map! Who has the correct answer? Perhaps we need to take a look at the “signs of the times” ourselves.
For starters, I don’t give any credit to the scattered news of business owners saying “things seem to be looking up” and “Bob called me and said this was his busiest week selling horses in his memory. Daggamit, you’re starting to think even Bessie will have a new home this week!” The stories make us feel good, but they are not reliable signs of an imminent market rally. As my UNC-Chapel Hill professor Bob Adler said, “The plural of anecdote is not data. It’s anecdotes.”
The data I trust is rooted in common sense; It’s a lot like Warren Buffett’s mantra “invest in what you know” mixed with Occam’s razor “the simplest solution is usually the best”. The real estate market is in very bad shape because banks do not give people loans so they can buy houses. When there are no buyers, there can be no sellers. When will this stagnation end? Well, let’s look at the trends. The reality for banks over the next year or two will be that they will take less risk; This means more government regulation, higher down payment requirements, and higher credit score requirements (upward trend). The reality for aspiring homebuyers is that they are riskier on paper with lower employment rates, lower credit scores and less money to put down (downward trend). These two trains must meet for the market to return, and right now they are on tracks heading in different directions; as they continue to move away, they form a large (and growing) gap of sales slack.
So when will the real estate market come back? Who knows? Personally, I would “read the signs” on the London Underground’s advice: “Watch out for the (widening) gap!