I think house prices in Coastal CA could slow or flatten maybe in say 2015 or something, but I don’t think we will see a dramatic fall in price. Here’s why:
1. I think any additional supply will be sucked up very fast. There are so many first time buyers, regular families, etc.. that want to buy now, but cannot b/c they can’t beat out all the cash offers. So lot’s of pent up demand and household formation.
2. Tens of thousands of people who went through foreclosures and short sales the last 5 years are becoming re-eligible to buy….”boomerang buyers”
3. The crash in 2008 was much due to a “once in a generation” insane mortgage financing period from 2003-2007. The loans that have been made the last 6 years starting in 2008 are extremely solid. Some of the toughest underwriting standards and appraisals in U.S. history. The 2010, 2011, 2012 loan vintages are showing some of the lowest default rates in history. So we are unlikely to get more inventory from future defaults. Most of the problems loans are legacy bad loans made pre-2007.
4. Builders didn’t build anything for the last 6 years in CA further restricting supply. Yet population kept increasing. And it takes a long time for builders to rev up the machine and get large subdivisions on the market to ramp up supply.
5. Vegas, Phoenix, Riverside County, etc..*over corrected* in price to below construction costs. It was insane in 2009 when a typical Phoenix SFR new built 3/2’s were going for $90k! And even now a house payment is still less than rent and historically really low. The affordability is still really great even at 2013 home prices.
With all that said. No one knows the future. Black Swan events and unforeseen major economic shocks could throw off my predictions.
