“Dead Cat Bounce” Heard of it?

I was discussing the current spike in the real estate market with friends who have recently sold and wanted some advice on whether they should jump straight back into the market and buy.  They were concerned that the market (which has been lagging for the past few years) was spiking upward and they were afraid of not being able to buy back in.

This is a common concern for many who sell their properties, and have not bought – a practice I do not encourage to most.  I’ve always had the same advice for the majority of home buyers, which is, buy and sell in the same market, it’s a no risk policy.

Of course, this is not what they wanted to hear, they wanted my opinion on the current state of the market and what I predicted would happen. 

Crystal ball gazing is not a wise practice without some in-depth understanding of market trends and historical and empirical data, and, is always subject to risk, opinion and judgement.

As they were both adamant to hear my views I simply said “Dead Cat Bounce”.  They both looked quizzically at me before I had to explain.

I said, it’s an economic term used to describe the temporary recovery to a market that, has been in the doldrums for a period of time.  Of course they thought I was making it up until I went to trusty Google to show them what I meant.

I explained that the current spike in the market was the result of languishing supply, being snapped up by pent-up demand, and that the real number was not the Auction Clearance rates (as some would want us to believe) but the value of the sales in the marketplace.

When I showed them that the current total value of the sales in the marketplace were in fact 35% less than the sales value at the top of the market,  they seemed surprised.   I went on to explain that the volume reflected sales at the lower end of the market with a high volume around the median price which had spiked.  These factors, together with the springtime selling period were the reason for this false impression of the market.  Yes, there has been a spike but not sufficiently at this time to make me believe it was anything more than “Dead Cat Bounce”.

I’m pretty sure they both really didn’t understand my explanation and hope they buy something before too long, just not straight away. Time is on their side

By Peter Karvon