I think the "reasonable price" is a question you must answer yourself to your own satisfaction. It is probably dangerous to rely on some quasianonymous blogger of dubious merit to be a financial expert for you. I am referring to myself and not SD Realtor. That being said, many people here are extremely smart, experienced, and helpful and provide persuasive data and arguments to consider. You should find out how much a Portico 2100+ sqft home rents for. How much does it cost to own per month and how much could you rent it for? Around the point those 2 values near each other, taking into account various factors, buying as an investment (not counting on speculation or excessive appreciation) starts to make sense and you have found the amount the house should "reasonably" cost. I'm firmly of the belief that real investors (not speculators) are reasonable people. And when they start to buy, values are reasonable because they are actually making real money at a return that makes sense. The current vast difference between the cost to own vs rent is more or less the "bubble". Of course it is an oversimplification but it gets you started looking in the right place. There "should" be a fairly consistent correlation between rents and prices. I don't think you can make an exception for the current market strength. If a particular area is really appealing, it seems logical to me that the rents should be correspondingly higher. So, even though you are talking about homes out of my price range I think the same factors and considerations should generally apply. I would mention that on average the carrying cost to own a mortgage seems to be around 2x the cost to rent everywhere in SoCal. You might ask yourself what are your personal reasons for desiring to buy right now? If there are factors about owning a particular home that you are willing to overpay for, then don't worry about a "reasonable" price. Very few people here will recommend buying at all right now. The very word "reasonable" seems to reflect the idea that prices are currently overinflated even if the market is still seemingly strong. Otherwise the market rate today is reasonable. Like everyone, you wish someone could predict the floor for a specific area or property. Have prices found something of a firm floor in Carmel Valley? If you can't answer that definitely, then you can't say prices aren't going down 30-50%. It sounds like they have alrady dropped at least 10-12%. That isn't that much considering the runup. I don't see it as much of a deal that an 800K home is now 700K. But maybe it is. You should turn the question around and ask if you believe it is possible for prices to appreciate any more? Appreciation is the only thing that can make up the difference between rent value and mortgage carrying costs. If they can't go up and you don't think they'll go down much, you are looking at a sideways market. And it becomes more important in my mind to consider the cost to own vs rent in light of the downside risk to owning. I'm not a real estate guy at all and I would trust SD Realtor to know what the current market is like. However, it sounds like the future market is what you are really concerned about. Maybe it would help to consider the line of reasoning I used for not buying anywhere in San Diego. Granted, I don't know anything about Carmel Valley, but I'm willing to cast a wide net. It got my attention when I began to consider if it is really possible to inflate prices any more. Because someone has to buy these homes. At the time interest rates were the lowest in history, yet the data showed the majority of people the past few years had been taking out interest only or negative amortization loans with minimal downpayment hoping to maximize leverage. This is also the only way they could "afford" the already inflated prices. In order to keep people in the game and also let in more people who should not have made the team, lenders kept lowering standards to virtually nil. As long as "creativity" is required to finance in general it seems ridiculous to even consider buying anything in particular. I also came to believe most people were either buying to make a lot of money quickly (and then sell to the greater fool) or they were scared they would be forever priced out. Both reasons seemed to violate some common sense principles of mine. I actually considered taking an IO loan myself and I know several people who did. The basic theory was "who cares" just pay the interest (and in many cases it was less than market rent) and then sell in 5 years or whenever the rate is going to change and pocket your quick 100K+. But everyone was doing that. I finally began to view the market as a giant game of musical chairs where everyone was selling each other homes and hoping not to be the one looking for a chair when the music stopped. There just didn't seem to me to be much of a concept of the long term future nor the fact that a loan is an obligation. Then I considered that affordability being around 10% in SoCal it was obvious everyone was paying a lot bigger a percentage of their income for a mortgage than used to be considered "safe". Those crazy adjustable loans were taken at a time in history where rates could only reasonably adjust one way. The timing of the loans meant everyone was going to be looking for the exit about the same time when the rates adjusted. The other part I considered is that property "values" are only expectations based on recent sales. It is not as though every home in SoCal has been sold at these ridiculous prices the past few years. A relatively few sales set the future price expectation for all of the ones not on the market. That is true going both ways. Many people don't HAVE to sell because they bought years ago. But those who DO HAVE to sell who bought recently are basically screwed. The final piece was considering liquidity and pondering the result of a change in public perception of real estate as a get rich quick scheme (ie, the music stopping). I'm glad I didn't buy, even if I could have made some money. I couldn't say for sure that I wasn't the greater fool. I decided that if I couldn't spot the greater fool, then I was probably it. I have been educated about real estate mostly from this board. Even if real estate is local you still have factors that need to be addressed: the relationships between the average income, the average interest rate, and the average home price for the area. Those fundamentals are thought to not change much and to become unsustainable at a certain point. There is such a thing as an average household making an average wage buying an average home with an average loan and average interest rate. All arguments against the real estate bubble tend to come down to "it's different here" and state why a particular area has different factors that must make it impossible for prices to fall. It is apparent you make significantly more than the median income if you are considering buying a 700K house. Or you are bringing a lot of equity from another sale and moving up the "property ladder". However, a reduction in prices at the bottom will affect the whole chain. If I look at the forest and don't worry so much about specific trees, it is apparent there hasn't been a forest fire for far too long. It is unseasonably dry and there is a historic fuel load with minimal moisture content. That dry lightning storm you can see in the distance is a combination of rising interest rates affecting widespread exotic loans while loose lending standards suddenly tighten due to the emergence of a new thing called a foreclosure. The minimal equity and personal savings of recent buyers dooms them. You have admitted that it seems clear the prices are going down at Portico. I'm not sure why you say they are not falling 30-50%. I think you can only really say "not yet at least". The best advice anyone can really give an anonymous blogger is to say go ahead and buy the house if you get a price you don't mind actually paying. The concept and expectation of actually paying off home loans seems to have disappeared from the earth. It helped me to realize a home is debt and debt assumes on your future. Anyone who is buying now runs the risk it may not be much of an asset in the near future and it may be hard to sell if you suddenly find you have to. I take it Carmel Valley is a very attractive location. There are probably a million reasons you have already heard as to why the market there is isolated from the rest of SoCal and why it will stay strong. I'm going to go ahead and guess renting there can be done for 1/2 or less than buying. If this fact makes sense to you, then prices are already "reasonable". If it doesn't, it might help to view buying a home as an investment and make some conservative assumptions and ask for a conservative rate of return on your initial investment. You must assume no appreciation for awhile if you really are going to be conservative. There I go again thinking rents should be related to prices! I think local rents should be related to local prices even in Carmel Valley. No matter how snobbishly rich and out of touch and great an area is, it is unlikely there will be no rentals. Market rent rates are set by how much people are willing to pay to live in such a sweet area and not how much land lords wish they could get. So I see that rent really is the current real value placed on all those intangibles that supposedly justify high prices. The market may continue to be different than what I consider reasonable. And other people may get away with buying and selling in the meantime. But as long as the market doesn't make sense to me from a "total cost" standpoint I am going to do the reasonable thing and rent and save and wait.
