What makes a market bottom?

I saw a new term the other day, “Growth Recession”.  It was in an article by Sonoma State University Economist Dr. Robert Eyeler in which he described the term as “a period of contracting economic activity combined with the addition of jobs”.  Well if people have jobs then they are earning money and that usually means they are spending it too.  In the real estate market we have definitely seen an increase in buying activity in the last 3 months.  This is due to low loan rates and low home prices.  I have found that people like to buy things when they are on sale.  In my opinion, these factors indicate that the real estate market is putting in a bottom.

If I am correct then why have you not heard about it? You will not read about the bottom until it has been hit and we have bounced off it.  The news will keep reporting the market is down until there is irrefutable evidence to the contrary.  In fact, if it will sell papers they will even ignore the irritable evidence.  All of the data that news organizations use is sold data which is always months behind the active market.  What I see as a Realtor and manager is that people are out buying now.  Loan applications are up, written offers are up, which means demand is up.  When demand goes up prices tend to go up also unless there is a larger increase in supply which we have not seen.  Of course if prices were falling before the shift in demand then the net effect may be seen more in prices stabilizing versus making a large move in the positive direction.  In any event, these are the technical indicators of creating a bottom to the market.  Prices do not have to continue to fall if people are willing to pay the current prices and they appear to be doing that in larger numbers.

Another factor that will help put in a bottom is the change in the conforming loan rates that the federal government is promising to send our way.  This could raise the conforming loan limit from $417,000 to some say as high as $650,000.  The conforming loans are the ones guaranteed by Freddie Mac and Fannie Mae and therefore can be sold on the secondary market which makes them desirable to investors because the risk is low.  Low risk equals low rates for the borrower.  This will open up the mid level home market in our area to many new buyers.  The lower end market is already heating up do to low prices so we can expect another segment of our market to get a shot in the arm with this stimulus package.

So who makes money when a market turns?  The people, who see the raw data, interpret it correctly and lead the herd as opposed to follow it.  Warren Buffet does not buy stock in companies because someone else did; someone else buys because Warren did.  Who do you want to be?