Of course, none of us can predict with certainty how this whole thing will occur.

Saying that, I now offer my useless predictions:

One, I believe we’ll ultimately see about a 50% decrease, adjusted for inflation. Some areas and types of homes/condos will see less, some more. I base this 50% drop primarily on rental rates and their relation to home prices. Rental rates are one of the most powerful and true reflections of the supply and demand dynamic within a market, taking into account factors such as income, migration patterns, housing inventory, economic conditions, etc.

Two, I think we’ll see prices drop quicker than many of us believe, and quicker when compared to the decrease in SD in the early-mid 90’s. This is mostly due to the massive amounts of loans that are going to start resetting. Too many people will simply not have the luxury to sit and wait this out, they’ll have to sell quickly, all heading to the exit at the same time, competing with builders who will soon be dropping prices dramatically (once the incentives stop working), and eventually competing with banks who need to get rid of repossessed homes quick. They’ll also be competing with people who will be losing jobs, and people who got in over their heads with HELOCs. The trend of people leaving SD will increase (like it did in the mid-90’s), adding even more homes to inventory. Add to this the fact that lending standards will tighten up, leaving fewer and fewer qualified buyers. Worst of all, even those who are qualifed will be in no hurry to buy, as they can just wait on the sidelines until it’s safe to get in again.

And three, when will it be safe to buy again? I agree strongly that rents will play a big part in the market eventually recovering. We will reach a time when one can buy a rental property in SD with 20% down and a 30yr fixed, and achieve decent positive cash flow. When that happens, the smart money investors will start to buy in SD again, creating demand and fueling a recovery, and thus signaling to the average homebuyer that it is OK to get in again.

Psychology created this housing bubble, and psychology will ultimately bring it down. Remember how intense the desire was for so many to buy a house when the bubble was peaking? We’ll eventually see that same level of intensity, but this time the desire will be to get out and stay away! Even though most of us here believe we’re going to see significant price corrections, I think many of us will be shocked at how badly people will feel about real estate. Many who are waiting on the sidelines will be too fearful to buy at the bottom.

Just like it was the worst time to buy when everyone wanted to buy, the best time will to buy will be when no one wants to buy, and I do mean no one.

So there are some of my simple predictions, now displayed in print for all to see, written evidence that can eventually be used to show how wrong I probably am!