I’ve been looking at one particular house in San Marcos recently. It’s not bottom end by any means. It’s a nice big 5br house in a good community, 10 min drive from the 5. The catch is that it’s a REO fixer-upper. In my unprofessional opinion, it needs maybe 30k in repairs. And it has a peculiar dark-blue carpet that most potential buyers would want to replace with a “happier” color.

It’s been listed for 580k since September, to no avail. They’ve lowered the price to 535k a week ago. I don’t think it’s going to move at that price, either.

By my calculations, if I could get them to accept a low-ball offer of 450k (which does not seem to be out of the realm of possibility), I’d end up living in it for $2000/month (PITI less mortgage deduction) It’s impossible to rent a 5br 2700 sf house for $2000/month in San Diego.

Once all the sellers in that neighborhood come to terms with the new reality, I don’t think that prices could fall much further. (Unless there is a spike in unemployment or mortgage rates)

The best way to describe the situation (IMHO) is that there’s a “fortress” (Carlsbad to Coronado, 56 corridor to Scripps Ranch) and there’s everything else. Outside the fortress, there’s pain, there are subprime mortgages, there are ARM resets, and there are foreclosures. Inside the fortress, there’s no pain yet, but there is a lot of overbuilding, a lot of $1 mil tract houses on postage stamp lots, and a lot of ticking option ARMs. Most of the county could (optimistically) stabilize by 2009. The fortress will slowly shake down and deflate long after that.