California Market Timer Pessimistic

Robert Campbell reports:

In his November, 2005 edition, Campbell writes, "Creative financing can be very dangerous when the price of the asset loses significance. People start believing that it doesn't matter whether a home sells for $200,000 or $400,000 because the monthly payment is the same. Sorry, but when mortgage loans are based on fictional values as opposed to true values that are supported by economic fundamentals, financial bubbles can develop that eventually implodes."

Markets are mean-reverting, which he says explains why booms are followed by busts. Prices will fall and revert back to true economic value if they have become overvalued in a boom. He considers vital signs to be: existing home sales, new home building permits, notices of default, foreclosure sales, and interest rates, but looks at many more indicators to arrive at his market timing solutions.

Remember,things don't go just to value, they go through to entice a buyer.