[quote=CA renter]
While I don’t expect the better areas to drop like O’side, Escondido, etc. (and mind you, only the “bad” parts in those areas saw the huge drops — the better areas are also holding up fairly well), I do expect them to drop to 2001-ish levels, adjusted for inflation. It’s just that the govt intervention happened right as they were about to be hit.[/quote]
That’s where I disagree. I don’t think the government intervention prevent the creme of the crop you’re looking for to drop. It might just be demand for those very few houses are higher than the supply available (since most of the were bought a long time ago.
I think the key word you just said there is, “adjusted for inflation”.
[quote=CA renter]Real estate cycles move in waves. Not all areas rose the same percentage at the same time, and not all areas declined the same percentage at the same time.
This most recent credit bubble meant the housing market was being fed from the bottom-up. The tremendous demand came from people who *should have been* renters, but were allowed to buy with low/no-down, no-doc loans with teaser rates. They were the first to go, which is why the least desirable areas — where these buyers clustered — dropped first.
What people tend to forget is that the higher-end areas also rose as a result of what was happening at the bottom. People with little means were suddenly able to come in with $200K-$500K down payments! The volume of sales at the higher end was lower — if you think of a pyramid, the bottom was all the renters and speculators coming in, while the top rose as a result of this squeezing up from the bottom. When the toxic stuff stopped being issued in 2007-2008, there was absolutely no floor under the lower-end places (and that includes the lower-end parts in the more desirable zips). Many of the people who bought during the peak in the higher-end areas had hundreds of thousands of dollars worth of “equity” from their down payments (courtesy of the fools who bought their starter homes with no-down, $500K mortgages). Many of the people in the higher end saw the writing on the wall, and thanks to the Fed’s extremely low mortgages, they were able to do a final refi in 2008 or so, and many pulled money out because they knew that door would be closing. Others refi’d back into ARMs, but they extended again into 5 or 10-year arms in 2007-2008. They intend to ride this thing out and use that money to help them through the tough times…until prices rise again in the future.[/quote]
I agree with this assessment. Wealthier people are better with their money on average, than poorer people. Which is why they’re wealthier in the first place.
[quote=CA renter]Problem is…lots of people are waiting for price to rise again so they can make their exit from unsustainable (over the long term) mortgage payments. For this reason, I believe if prices hit their peak levels, massive inventory will hit the market, essentially keeping a lid on the anticipated price inflation.
There is a lot of distress. Lots of it. But the higher-end families have more resources and know how to work things for a while. Unfortunately, many of them are tapping into savings/retirement that they shouldn’t be touching. This will come back to haunt them in the long run.
I’m a deflationist. IMHO, if prices rise, it will be due to the Fed’s trashing the dollar which will enable foreign entities/people to buy up all our assets. Question is, who’s currency will manage to come out on top?[/quote]
This is where I disagree, and only time will tell. If price does come back to peak level, I think those who have stuck around will continue to stick around (for many different reasons). Some might stick around because it’s their permanent house. Some might stick around because they want more (profit vs break even).
I was a deflationist up unto the government start interfering. Now, I think we’re more likely to see inflation than deflation. Only time will tell.
