Residential Housing To Drop Another 25%
Since 2005, I’ve been saying that San Diego home prices are way overpriced and are due for a 40-45% correction. The homes are so far out-of-whack thats it’s 30-50% cheaper to rent than it is to buy. Of course, the National Association of Realtors (the cheerleaders of the real estate world) will always tell you its always a good time to buy, but anyone who can use a calculator might think otherwise.
Already in most parts of San Diego, home prices are down 20-30%, unsold inventory has sky-rocketed, and real estate is no longer the main topic of cocktail parties.
Someone recently asked me if I though it was a good time to buy in San Diego. Houses in a Cardiff/Solan Beach/Encinitas/Pt. Loma that were $800-900k during the peak were now in the $600-700K range. When would we see the bottom?
I obviously thought it made sense to wait until the prices overshoot fair-value and become undervalued. Real estate has a tendency to keep moving in a trend for a very long period of time. Once its started to go down, it’ll just keep on heading in that direction. The Federal Reserve may try to give the bust a ’soft landing’ but that won’t have much of an effect. It’ll probably just increase the duration of the downturn, similar to what happened in Japan after their real estate market crashed and was depressed for 15 years.
BusinessWeek finally has an interesting article about the Housing Meltdown: Why home prices could drop 25% more on average before the market finally hits bottom..
Even Mike “Mish” Shedlock thinks that home prices will reach more reasonable levels in 2009. Nice to finally see some corroborative data from an economists point of view.
How many of you think the bottom is in 2008?
If you found this post helpful, consider donating to my coffee fund!![[del.icio.us]](http://images.del.icio.us/static/img/delicious.small.gif){kind=small}
-
Ben Stein Loves Real Estate I'm a big fan of Ben Stein's books.I also read his column, How Not To Ruin Your Life. This weeks issue is about letting the non-financially savy spouse in on what to do after you pass away. But best of all, he professes his love for real estate!We're currently somewhat...... - People Fleeing San Diego! Well maybe they're not fleeing yet, but they've started to leave. According to an article in the Union Tribune, there was a net exodus of 43,126 people from San Diego county last year.County demographers have forecast a long-term flattening in growth, although not a population decline. Housing analyst John Karevoll......
- Bite Off What You Can Chew One of the more popular real estate clubs in San Diego is the SDCIA. It attracts a lot of newbie investors and is quite large. It has a really good message board which has posters from all across the nation.One unfortunate investor turned to the message board to see if......
Related Websites
- Real Estate Investments - Good Idea or Bad Idea? Right now, if there was a market that had bad news written all over it, it would be real estate. The housing crisis has made investors jumpy, the economy appears to be tanking and home values are plummeting across the country. Would you believe that this is actually a good......
- Is the bubble coming to an end? Bill Fleckenstein weighs in with the Contrarian Chronicles on MSN Money: It's RIP for the housing boom He thinks that this summer is the end -- finito, kaputt, arrivederci -- for the housing boom. For every prediction, there's always someone willing to take the other side. Presumably that's the "Contrarian"......
- Will Your Standard of Living Bubble Burst? This article is for consumers who may be living in a bubble of an inflated standard of living. The economic data indicates that there are many of you out there. To find out if that could be you, please read on. Economic Bubbles Bring Worlds of Troubles What is a "bubble"......
[All content is copyright of Living Off Dividends & Passive Income]
February 8th, 2008 at 12:33 pm
The bottom will definately not be in 2008. I would bet every last dollar I have on that.
On top of that, even when the bottom hits, it’s not going to bounce. Historically, when real estate goes down, it stays down for a quite a while. It does not move as fast as the stock market.
February 22nd, 2008 at 2:01 am
I don’t see how it can bottom in 2008. Despite lower rates, there are still not enough buyers and too much inventory (and phantom inventory).
Like increases, asset price declines tend to be self-reinforcing trends. The more illiquid the asset, the longer the trend. If stock markets have a 2 year down cycle after a major run-up (1973-1974, 2001-2003), housing seems likely to be down for 5-10 years (1988-1995).
If the banks continue to struggle with quarterly write-downs eliminating profits, credit will remain difficult to obtain for any but the most solid buyers.
March 11th, 2008 at 1:09 pm
I don’t think we will see a bottom until 2011. I have written a few posts about it on my blog.
Nice to see some corroboration from you, EmptySpaces, since you are far closer to the market than I am. It only makes sense that prices have to overshoot to the downside. Its a mean-reverting series, so overshoots in one direction have to be offset in the other, and buyers simply have no incentive to purchase an asset with 4-9 times leverage when prices are falling because of the loss of equity. This will only make sense when prices fall so low that investing for cash flow with modest leverage produces reasonable returns.
I do think we are headed for a Japan-like price deflation which is the usual aftermath of a major fall in leveraged asset prices and that this down cycle will be extremely bad.