Although it is certainly possible that the drop will be bigger this time, what I’m hearing in the responses so far is just “this time it’s special,” with no strong basis for believing it. I do not consider it convincing when someone makes general statements about ARMs, how much prices have risen, etc., and then moves from those disconnected references to a specific prediction about future SD home prices. It sounds rather similar to all the special pleading from those who argued that prices wouldn’t drop because everyone wants to live in SD, we haven’t had big job losses like in the 90s, etc. In this case the exceptionalism is just aimed in the other direction. I don’t give either side a free pass on making a case that is backed up with sound analysis.

Any analysis based on a faster decline (as suggested by Kev) requires some type of assumptions about what the decline curve would look like. Any future projection based on price/rent or price/income ratios (as suggested by jg) requires making an additional projection of how rents and/or incomes will change. I don’t have any methodology I consider especially trustworthy for projecting these items. However, I did an off-the-cuff analysis (borrowing some assumptions about income from Rich’s own analysis in “Risks of a Serious Home Price Decline“) of a price/income-based model with a somewhat accelerated decline. This analysis suggested a bottom in 2015 at about 30% below peak, which corresponds to mid-2003 prices.

This latest analysis is a bit fast and loose for my tastes and I’ll see if I can come up with something more supportable. But even this approach comes up much less drastic than some predictions, such as those calling for 40-60% declines, pre-2003 pricing, etc. If someone who believes in these types of predictions has a well-grounded methodology for supporting them, I’d love to hear an explanation. But if you want to convince me of something, please heed what I said above: a wave of the hand in the direction of ARM resets, etc., is not a well-grounded methodology.

I want to be clear that I’m not arguing in favor of buying now, “soft landing,” etc. What I am doing is challenging those who declare a belief in a historically unprecedented drop to back up those predictions with more than “it’s different.”