The basic psychology has changed somewhat, and is continuing to change. It is getting more and more negative, and I don’t see any gushing positiviy around (save for the NAR, who can manage to see a positive in a market that couldn’t stop increasing to the stratosphere, no wait, okay, would increase a bit more slowly, no wait, would land “softly” with stable prices, no wait, would dip just slightly cuz that’s a good thing for buyers, no wait..on and on and on, the rubbish factory churns steadily!!!)

What else explains the lack of buyers, and the still large inventory? The continuing decrease in Mean price/sq. foot as Rich pointed out in the charts? Most of all, when all is said and done, despite the mix of wishful thinking and facts that we use to guide us, I believe firmly that recent history is rock solid, and for the most part, indisputable. History tells us that this ship is sinking. My folks bought property in Southern California in 1991, not doing there homework, and they didn’t recover their original purchase price till 1997 or 1998. And that was typical, not an isolated case! I can tell you for a fact that a decrease in interest rates doesnt make a $500,000 piece of rubbish property and more endearing or attractive to me (I’m a renter), I want that damn price to come down, period, to something fair based on fundamentals, such as comparing what it would cost to rent that property vs. a 30-year mortgage with 10-20% down…

Also, I did a quick comparison on Excel, looking at the monthly payment on a $500,000 mortgage with 0% down (typ. these days), 7% interest with 2% prop taxes, between a 30-year and 40-year loan. the 30-year payment is $4,159/month and the 40-year payment is $3,940/month, a difference of $219. That is something, yes, but it’s not going to make a tremendous difference, it won’t bail out people who already have negative equity in there homes! Who will refinance them anyways? I believe in history and facts, so far, both lead me and others to an increasingly glaring conclusion: this ship is going to sink, who knows how deep, and how long it will take, but sink it will.

calidesigner

A couple things could help to save the ship including lowered Interest rates, continuing strength in the economy and lender bailouts of over leveraged homeowners but the bottom line is there is nothing more important than supply and demand. Demand is holding up surprisingly well and so far the inventory is suprisingly low as well this year. Inventory in my area is actually lower than last year which stuns me. I’m not betting one way or the other but if you made me guess I would think we will end up a stagnant market where a very high percentage of sales are distressed. In that case good deals will be easier to locate then good properties.

If that is the only thing that can save the ship (and I don’t believe it is), start inflating the liferafts!

Check out what has been happening with inventory on The Short Sale Monitor thread. So far we have seen a real lack of new inventory this year. last year we were already piling on by January. Still way too early to say anyhting though.

Perry –
Can you elaborate on expectation of 2001-2002 prices, followed by a decade of stagnation ? What scenario are you assuming for inflation.

If I read you correctly this means that you expect to see the same prices in about 2018 that we had in 2001 (assuming 2 years from now to initially hit bottom). Do you really expect this ? I find this not only implausible, but bordering on ridiculous.

According to Rich’s charts, the median home price to income ratio was BELOW the long-term average in 2001. If they are at that level 17 years later they would be off the charts, assuming any inflation at all.

Perry: I can’t believe you’re long on real estate. Your RE pricing projections make sense to me, especially in real terms (inflation-adjusted dollars, that is). So, when you buy your new house, at a future price that will be lower than today’s, your existing house also will have depreciated. Of course, if you’re saving very aggressively now, your high down payment/equity in your next house will more than offset what you lose in your current house (which has been depreciating since 2005).

Diego, yes, I realize that my house is depreciating. But if I sell and pay rent on a similar house, then my monthly housing costs would subtantially increase.

I’m not home that often because I spend time at a my girlfriend’s who has a really nice place. If my house were an investment, I would have cashed-out. But it’s home and I have elderly relatives who love to visit SD so they use my house as their vacation home in California. I’d hate to change that on them. Plus the house is just the way I like it. I also have a fairly low property tax basis that I’ll like to keep.

The only (big) problem is that I now find suburbia very oppressive (just my opinion) so aside from living there, I have little connection to the people around me. Who knows, maybe I’ll end up regretting not selling in 2005.