I am a potential home buyer in North County, waiting to get in at a reasonable price. Instead of timing the bottom which I believe is quite difficult (else we would all be millionaires :-)), I thought lets go the other way and try to price the bottom. Here’s my simple model for it. Lets start with a base of year 2000 home prices, as I believe the irrarational exuberance commenced around then. For this I looked up a random 2000 sq.ft. 4b/3b home in San Marcos from zillow.com that was about $220,000 in 2000. Assuming a strong local economy home value appreciation should be about 5%-7% annually. So taking an average of 6% compounded growth rate, above home should be valued around $395,000 in 2008. That tells me that if I can get that price, or even lower for a foreclosure, by this year end it might be all right to buy. Same model can be extended for any size home in area you are interested in. I am interested in what other piggington readers think about my reasoning. BTW Rich you the man for coming up with this site. For disclosure, I have no finance or real estate background. I am a faculty in a business school in North County and I like examining such interesting conundrums.
