I think we’ll see an 8%-10% decline in the median price/sq. ft. here in SD this year. The marginal buyers from the last three years are gone. These buyers were the speculators and the people who bought with little/no money down, stated income, and used ARMs. Most of these people will no longer qualify for loans under the tighter credit standards, thereby knocking out a huge portion of first-time buyers (maybe half?), which reverberates up the transaction chain. Now the people trying to sell their $500K house have half as many potential buyers so they will have a hard time moving up to the $750K house and so on.

I just looked at the community where I used to own (sold in early 2004 – too early, doh!) and there are two properties for sale. One is for sale at $319K, the second at 399K. (These units peaked out at $410K in summer ’05 and the most recent sales were in the $330Ks.) They are virtually identical condos – exact same size and layout. The difference in price is due to the fact that the owners of the first home bought in 1998 for $120K (and have a big built-in gain), the owners of the second home bought in 2004 for $389K, so the latter owners MUST sell for well over $389K or they’re going to lose money. I think that there are A LOT of people in this situation and they won’t budge until they’re forced to – they’ll hang in as long as they can which keeps the market from tanking in the short run. The problem is, of course, that your house doesn’t know or care that you own it, nor does the housing market…

Also, obviously, inventory is much higher than it appears due to all the builder units that don’t show up in the MLS. Yes, this year is going to be a doozy… and next year as well…