Here is the home prices won’t actually fall that much argument by Lou Barnes at Inman.
“Housing in the Bubble Zones is still sliding, inventory accumulating,
foreclosures rising, all likely to continue for years. Those ignorant of
housing propose resolution by sellers cutting prices, but it doesn’t work
that way: overextended prices stay flat until purchasing power accumulates
to support them. The farther the boom pushed prices beyond purchasing
power, the longer it takes. This time, years and years.
Financial market commentators now speak casually of home prices falling 7
percent or 10 percent or another percentage du jour. Prices will fall that
much in some micro-markets, but most of the country did not join the
Bubble party, and will experience nothing of “falling prices.” The stock market
can fall single-piece in a heap (99 percent of the S&P 500 stocks fell in
Thursday’s wreck); homes are a neighborhood-by-neighborhood affair.”
Southern California is one of the micro-markets he is talking about. Basically he sees a 7% to 10% drop and thats it, San Diego is already 7% from the peak so I guess we won’t see much depreciation from here on out according to Lou. I personally try to keep my mind open to all possibilities, it’s not so much being proven right as it is wanting to know the truth of the situation. One thing I would say to Lou is that we (especially California) have never experienced home prices become this disconnected from incomes and rents….Never. I think the markets he is speaking of historically have maybe hit 5 to 6 times incomes at their peak and fall back to 3 to 4 times incomes. So yea, time heals all wounds in that case. By the way thats what happened to Southern California during the 90’s downturn and nominal home prices fell over 25%. We saw home prices hit 9 to 12 times incomes during this last boom. It will take a really, really , really long time for purchasing power to catch up this.
