Yes the >50% price drop is very tempting but let me explain why there are more legs on the down side:

1. Supply and Demand:

Yes, since new housing starts are down in the toilet, there won’t be not much new supply. However, we got enough extra supply due to the mad construction during the bubble years. Plus the houses are much bigger than before. A SFH can easily house one and a half families, so more people will rent out their extra room in the house.

Then on the demand side, we are starting to see job loses. SD’s high paying jobs are in defense, technology and pharm-bio-tech. Defense, due to the new president, I do not see any growth. All the technology are on hiring freeze. Biotech, with the outsourcing to India and China, will see big layoffs soon. Then on the lower paying jobs, mainly travel related, will be down for sure in a recession.

2. Technical/Psychology

A bottom will reach when nobody want to buy. Right now, people are thinking 50% is a good deal and rush to buy. Once we exhaust this pool of able buyers, the next leg down will continue.

I was tempted to buy a Mira Mesa Condo in June as an investment but got outbidded. It turned out to be a good thing. At that time, the rent multiple is pretty good (125) but it is even better now (100). However, I think the rent will go down, reversing its recent up trend, and make the multiple high again. Proof? Go to craigslist and see how many listing in there. A year ago, I won’t see many apartment building postings on craigslist but now you see them all the time with incentives, even price drop in isolated cases.

In conclusion, yes we may well see a spring bounce but it will follow with another bang. Be careful out there.