Totally agree. I have personally talked 3 friends of mine out of buying hideously overpriced SD real estate in the last 3-5 weeks. I am proud of myself and they are feeling like they dodged a bullet that had their name on it !

After I pointed out the facts to them, they breathed a heavy sigh of relief and put their checkbooks away when they saw the reality of it all.

Friends dont let friends buy SD real estate.

Think about this. The only reason that “now is a great time to buy” for a buyer is if they think the long term pricing trend is stable or going up. WHEN it becomes apparent that the trend is going down, that motivation is no longer applicable. The more the trend declines the less motivation there is to buy. At whatever point the majority of buyers come to perceive that the price trends will decline a long way the volume of sales will drop off so much that there won’t be hardly any sales at any price.

Already we can see people who might want to get in but who are recognizing that now is not the right time. Think about what it means when a friend or casual acquaintance can dissuade a potential buyer to hold off on making this kind of investment, even in the midst of the “please remain calm” media campaign being run by the biggest names in the real estate business. Think about how many more people will sit on the sidelines, not buying at ANY price, until the cost of buying is somewhere close to renting. Because that’s the benchmark the economists are going to end up pushing in answer to the question of “when should I buy?”

When the pricing trend reaches that critical mass, it won’t matter how badly a seller wants to sell because their buyers won’t pull the trigger until the prices recede. Because a seller basically can’t sell for much less than the current balance on their mortgages, those sellers who are maxed will end up being trapped in their homes until they either default or the market comes back around in the next cycle. Or perhaps I should say, IF it comes back to this point in the next cycle.

I’ve been in the appraisal business for 20+ years now and this is the first time I’ve ever even heard of people seriously considering selling in favor of renting. Yesterday, I spoke with a friend of mine who retired after 45 years in the appraisal business and he said he’d never heard of it either. The current attitude going around about questioning the true value of “ownership at any price” is as unprecedented as the price spike that has contributed to it. I don’t think it is being too unrealistic or too negative to extrapolate an increase in the number of people who will eventually come to hold that attitude as it gets more media play. Social acceptability of renting could possibly end up having a huge impact on the market psychology, which in turn could have an impact on how well the “buy now or get priced out” marketing ploy works in the future.

I think there’s a difference between a homeowner thinking about renting and cashing out to actually do it. But if a lot of owners did move out to rent it would probably lead to an increase in SFR rents. Let’s face it, when compared to paying $1,400/month to rent a 2bd apartment in a nice project, paying less then $2,000/month for a detached home in a comparable neighborhood is indicative of an SFR rental market that’s somewhat undervalued when looking at the relative utility of these different property types. Those SFR rents probably SHOULD come up a couple hundred bucks. At least.

I don’t know of any historical records. All I can do is tell you that SFR rents never did go down – they just stayed where they were and didn’t go up. Matter of fact, rents didn’t increase at all until the sale prices moved out of the low side of the cycle and passed the historical trendline itself. Since 1990 the rent amounts have increased an average of about 50%; which is not unreasonable when compared to housing prices and when considering the effects of inflation on the dollar.

I love the u-haul test! Similar % spread for various locations? Or is LV an anomoly?

> “If people cash out in favor of renting, who’s buying their house?”

The bank.

Same 17′ truck from Phoenix to SD: $99.
SD to Phoenix: $319.

I’d guess you’d see similar lopsidedness just about anywhere you’d check.