The above graph is an excellent depiction of the psychological stages of a market bubble. It is fairly easy to put time frames to each of these stages ... :
• Take off: 1998-1999
• First Sell Off: 2000
• Media Attention: 2001-2002
• Enthusiasm: 2003
• Greed: 2004-2005
• Delusion: 2006
• Denial: 2007
• Fear: 2008
• Capitulation: 2009-2010
• Despair: 2011-2013
• Return to the Mean: 2014 ....
Right now, we are in the denial stage. Prices have not dropped enough to cause real fear. Denial is apparent in polls like this one: ... 85 percent believe their home will rise in value during the next five years, and 63 percent believe a house is a good investment. That is serious denial.
I had forgotten that the vast majority of people went from believing there was still an upside to where we are today in just nine months. Anecdotally, here in Philly - not the boom capital of the country, by any means - friends of mine just bought a very nice fully-renovated house for their opening offer of 15% under asking price, a $100,000 discount. In a separate transaction in a different part of town, I represented the seller who had to sell and took a similar haircut.
Note that we reached the capitulation stage a year early, so maybe the total time to the end of the cycle will be shorter.