I agree with you zk. Psychology played a very large part in creating this bubble. Remember how intense the euphoria was here in San Diego in the spring of 2004, when everyone wanted to get in? We’ll see that same level of intensity on the opposite end of the scale when prices have fallen and people are fearful of getting in the market, afraid of buying a home that is going to fall even further in value.
This happened here in the mid-90’s. I have several friends who bought homes here then, and I ask them about what the market was like at that time. Everyone of them tells me that they had virtually no competition, lots of inventory to choose from, that they were looking at homes that had been on the market for over a year, that sellers were pleading with them to buy their home. Some of the sellers had not even had anyone look at their home for 9 – 12 months! But my friends also say they were very hesitant to buy, because the market was so bad, no one else was buying, so why should they? Maybe if no one else was buying, there was a good reason, they thought. Of course, later on they did not regret their decision to buy.
I believe we will see that same dynamic play out again. Many of the people who now are saying that they will buy will be too afraid to buy when the “blood is in the streets”. There will be many, many people who will be forced to sell, lowering their prices, competing with each other. But buyers don’t have to buy, they can sit on the sidelines and wait. There will come a time, probably in a few years, when virtually no one will want to buy into San Diego’s housing market. That will be the time to buy, if you’re brave enough!
I know it’s not easy to time a market. However, one thing I’ll be looking at to help me decide when to buy is the rent-to-own ratio. In the mid-90’s, one could buy a house with 20% down and rent it out and break even or have positive cash flow. Obviously, we are not even close to that now. But when it happens again, investors (real investors, not speculators) will start to get back into the residential rental market again (the smart money has been out for awhile now). This is one of the factors that helped San Diego’s housing market come back to life in the late 90’s, as the smart money investors got back into the market and started buying homes, creating a demand.
I keep telling people (anyone who will willingly listen) to save money, stay out of debt, and just be patient. There will be some amazing bargains in a few years!
