Another way to consider how far prices will retrace is to look at other financial bubbles in history and what has happened to them. {If you choose to deny history and that San Diego real estate is currently in a bubble, you can stop reading now.}
ALL financial bubbles have been fully retraced. Not some bubbles, not most bubbles – ALL bubbles. Pick your bubble and it was fully retraced: Tulip Mania in Holland; Mississippi Company in France; South Sea Company in England; Florida real estate in the 1920’s; US stocks in 1929; etc, etc, etc.
That tells me that the San Diego real estate bubble will be fully retraced as well.
So the next question becomes “when did the bubble start in San Diego?”
Since real estate historically rises at the same rate as inflation, I would maintain that the bubble started when housing prices began to increase faster than inflation. I believe this was in the 1997 – 1998 timeframe. (Perhaps Rich can chime in with a more exact date.)
If I go to http://www.zillow.com and pick a typical house in Clairemont (92111), the 10 year chart of prices shows me that it was 2000 or 2001 before prices rose above 200K.
Based on my bubble-retracement analysis, I might expect that the 3/1 in Clairemont would retrace to its 1997/98 price of 170-180K.
I’m not expecting that big a drop. I will stick with my 225k target.
