I kinda think that the next real reduction is that rents will fall as population does. California is already loosing people left and right to other lower cost states. However we had a huge economy going, demanding ever more cheaper and cheaper labor, so internation immigration made up more than the difference. Already crossings at the Mexico/USA border are 20-25% below previous levels. Itll get worse before it gets better. As population falls, demand for rentals falls as well. MM,clairmont, linda vista, poway, National City will take it in the ass as their base demographic disappears to other states. Sure, immigratants will want to move in, but how many are making 100k+ a year to afford a 350k house? Not many, not with a really weird recession striking at strange parts of the economy and growing stronger.
Now about rents. You can start to see small cracks forming.
(strange, just over a year after the subprime fun started and the cracks start to show. How long is a standard lease again?)
These will get snapped up in a second, but itll put the constant drumbeat of rising rents under pressure. Why should I rent your 2/2 for 1450 when I can get similar for 1200? Is it as nice. No, but then again I can actually afford a better life if I pay less. Again why pay 1200 for your 1/1 when they will take 900? Small cracks, but over time cold and water in small cracks will break up any rock.
Also, I think that a small disconnect lies in the definiton of supply and demand. First demand needs to be broken up into general demand, (ie I WANT A HOUSE) and buying demand (ie, I CAN BUY THIS HOUSE). I noticed an estimate that I cant find anymore that says that the requirment of 15-20% plus a 3 month cushon, would remove ~35% of the buyers from the market. Now that was national, but itll be worse in CA, and even worse in a bubble zone like SD.
Second, supply can be artifically high due to the huge rash of foreclosures. MM is already one of the higher areas for foreclosures North of the 52. How much more junk lies in wait? How many people want to stand with their 450k morgage when the house next door is selling for 300k?
I see no reason why areas such as this wont overshoot any basic fundamental to rent or affordablity due to high supply and painfully low demand. This is long term, ie the next 2 years or so. Plus, MM will have to start competing with the slightly nicer areas like PQ and Poway and such as prices inch down there too. Every buyer is precious in a market lacking demand, and itll drag housing lower the same way people traded down to MM because they couldnt afford PQ when prices were rising.
And inflation isnt gonna get us outa this, Wage inflation would, but any recession will take care of that. Rents went up faster then income just like prices did, and theyll have to come back down to fundaments too. It just isnt ANYWHERE near the degree. I say ~15% give +/- 5% due to sevarity of recession.
Also, ok. Say I am totally wrong and this is the bottom of the market. So things get ok, people feel better and banks stop failing. So what happens??? The fed raises rates to combat inflation and all of a sudden rates are up at 6.5-7% again and now what??? Damned if you do, damned if you dont. Prices reductions are the only thing that will fix this, absent huge wage inflation. I vote for wage inflation, but I have a feeling my vote doesnt really count. Damn, just like Florida sans 2000.
Asia, If your looking for a house, 1700 is the bottom of the market, and I wouldnt pay more than 1900 for a 3/2. Good luck man, I dont envy you at all. Not really looking forward to the fall. I just cant imagine that my LL wont want SOMETHING in 3 years. I dont want to pay it, I could, but I am cheap.
