Shift:The beginning of the book starts out very fundamentally speaking about the real estate business cycle. Like every other business cycle, the market goes up, the market goes down, but when the market makes a quick turn everybody is surprised that it happens.
National Shifts Happen Gradually and Local Shifts Happen Fast. I tend to agree with this statement in the context of the market I work in, New York City. The national shift started when the subprime market started to make loans more and more difficult to obtain. Real estate is an illiquid asset, you can't sell it like a stock when you get bad news. It takes awhile to sell therefore the shift in pricing is going to take awhile. It takes awhile for property to close to really see the writing is on the wall that prices have adjusted. In Manhattan our local shift did happen fast, it happened in a matter of months. Once Lehman Brothers and AIG failed, prices and sales volume shifted quickly. It took about two quarters until sales volume started to pick up again, but pricing still appears to have year over year losses.
The Law of Equilibrium. The law states that the available income in any market is determined by the number of agents in that market. As the number of transaction rises(the amount of money being made), so does the number of agents. Because of the very low barrier to entry that most real estate marktets have its extremely easy for almost anybody to get a license and get in. Naturally when homes are selling in bidding wars it looks like real estate is easy money, which it might be for that period of time. But inevitably when the market shifts there are too many agents and not enough sales volume to keep up and most agents will fall to the wayside. Clearly the goal is to be able to ride out the downside wave until sales volumes will increase again and you will be in a position to grab larger market share because there is less competition from other agents who have yet to enter the market.
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