jstoesz, you are making a good point but I am not sure I would say that the “sea of demand” is driving prices down. What you said about yesterday’s “deal” being today’s “retail” price is exactly correct.
What is driving prices down (and basically what you are describing) is deflationary expectations. Buyer’s want to buy with a “cushion” because they expect that prices will be 10-20% lower in 6-12 months.
So why don’t buyers just wait 6-12 months and buy for a 10-20% discount over today’s prices instead of moaning and groaning about the “lack of well-priced inventory”? I have some opinions on this but take them with a grain of salt because I am just speculating.
1.) Many in the buyer pool today are exactly the same people that sat on the sidelines while the bubble first inflated and then deflated. They feel that they have already been sidelined for 5-10 years and that they should certainly not have to wait any longer for a house at a “fair” price.
2.) Many buyer’s realize that the low interest rates of today could be fleeting and that if they can get next year’s price at today’s rate then they come out ahead.
3.) Most of today’s buyers are looking for cream-puff properties (can you blame them?). They realize that regardless of the market that finding a special house in SD county has always been difficult and they are out looking just in case they can find that elusive combination of killer property and killer price.
4.) Regardless of how clear the evidence is that prices are going to be declining for the foreseeable future, there remains that sliver of doubt in the buyer’s mind. They all know that the FED is trying like mad to re-inflate. If they succeed (even just a little bit) then prices could firm and firm quickly in the most desirable parts of the country. If the herd starts to get a whiff of inflation things could change and quickly.
