[quote=scaredycat]what other people do does matter in real estate though. I mean, remember how he neighbors get so uptight if a law isn’t kept up in some subdivisions. everyone knows the market depends on what every one else is doing. so it does matter what your neighbors are doing even with soemthing as trivial as their cosmetic upkeep, and it damn well matters in something as critical as are they even paying for the damn place. it’s one thing to say this is just part of the normal pattern, this is the way things go, and everything will sort out. but how does people not paying and banks not foreclosing, sort out normally? I don’t see it. i’m open to math; i love numbers; but this is just not ok; it is not ok for large swaths of the housing market to just be put on hold and people allowed to live for free because it is impossible to say what the house next door is worth. it’s not enough for me to say, well, your payment is a good deal, so who cares what the other guy is doing. I guess at bottom I refuse to focus on the payment; i want to know that the price is really the price. in a market that has meaningful data. I guess I was shocked when people i know disclosed to me thatt hey’re just not paying…compare this to a city like new york, with rent control. people get greatd eals on apartments, and others have to pay sup high prices in comparison to the rent control lottery winners. A high priced rental could still be a good deal, even though your neighbor is getting a screaming deal. the difference is that that is the law, and it’s a predictable suystem, and we know which units are controlled and which aren’t, and while it may not be entirely “fair”, it’s at least orderly. I don’t see any orderliness to this market, and I don’t see any way that the disorderliness in it can lead to profits for me. i see it straight down. i guess i lack balls.[/quote]

That’s why I went back to the fundamental long range relationships.

Because of the factors you mention, it’s impossible to know how much further everything will fall – it was a record breaking run up to the top, and it could very easily be a record breaking overreaction on the negative side. On the other hand, it might not be – vulture investment groups could start buying properties en masse (and in some places, they already apparently are). It’s also impossible to know how long interest rates will stay as low as they are now, but one thing I do know is that they won’t stay this low forever.

So you go back to the fundamentals. Rent is one number that really didn’t exceed it’s long term growth (at least, not by much). In an area where house prices (NOT payments, but the actual principal price of the houses) are now in line with long term rental rates, it’s probably not a bad time to buy. Even if the downside is still significant, there is VERY good reason to believe that prices will rebound back to the trendline relatively quickly (certainly within 5 years I’d say).

Of course, many areas of San Diego are still silly priced. You can rent a house, for example, in 4S or CV for MUCH cheaper than you could buy the same property (price/rent ratio of near or above 20) – which tells you those sub-markets still have a ways to fall. On the other hand, in areas like San Marcos (excluding San Elijo right now, though San Elijo seems to have lost it’s immunity and is now rapidly depreciating back to the long term trends), Chula Vista, or East County, many areas are now back in line with their long term rent trends.

Only in the event of a Great Depression type of scenario will this not be a decent bet – and in a Great Depression type of scenario, I think I’d rather be owning a home than not – at least with a home I too could join the millions living rent free if the financial system does completely come apart at the seams and totally melt down, taking the economy with it. Of course, if this scenario does happen, and you happen to be lucky enough to be standing on the sidelines with cash, you can probably make out extremely well – providing the economy doesn’t tank your job as well. Risk vs. reward. Me? I don’t think this will be a Great Depression, and if it happens to occur, I don’t want to bet that my job will be one of the safe ones (even though it might very well be).

Of course, I’m not in it for profits – I’m in it to have a nice place to live that I can afford – if your motive for buying a house is to make a big profit on it, you may have missed the market by about 6 years. After this bubble and bust, I think RE will spend quite awhile sitting back appreciating at no greater than wage inflation. The profit will come by living a long time in the house, making the leverage and the tax breaks work for you, not by investment grade Y-O-Y appreciation.