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?