Comparing this RE cycle to the last one from 1990 to 1997 may be a little off. This one seems to be happening a lot faster and with much more severity. I think this is primarily due to all the loans being really bad for the barrower. In the 1990 scenario there was a recession that fueled the housing down-turn. So I think it was a smoother and less harsh down-cycle. This time we have a huge amount of bad loans followed by a recession. Hence the much sharper and severe cycle. The market went up fast and high from 2002 to 2006 and I think we’ll see an equally fast and hard drop due to the current situation. We’re already at or near 2003 prices according to Rich’s charts and this down-cycle is far from over.
Since RE prices are closely tied to employment, I doubt we’ll see the bottom of this cycle until employment starts to improve. So, if there’s another 2 or 3 years of poor employment and more bad loans go REO and interest rates increase, etc…this current “stabilization” in some of the local RE markets may be a false rally and prove to be a loss for all the “investors” that are currently buying.