Sounds like there’s a lot of emotion on this issue, so I’ll just drop in on this thread and drop out.
The notion that 50% off peak prices is a baseline, not a nadir, isn’t so far-fetched. I always scratch my head when I see fellow Piggs say that they expect the market to bottom at the price level that prevailed some time between 2000 and 2003. Sure, that could happen, but real estate is very cyclical, and the bottom of the last cycle was not then – it was 1996 or so.
In my own attempts to ballpark what home prices in So Cal might do as they reach bottom in the next few years, I:
1. Start with prices as of the bottom of the last cycle – 1996
2. Add some inflation. You can argue over the amount, but it’s not worth refining too much, so I just add about 40-60%, depending on my mood.
3. Subtract some for the extra severity of this downturn. This is a pure guess. Your guess is as good as mine (unless it’s different!)
4. Add some for the massive government efforts to maintain high home prices in this latest downturn. Who knows?
Because the last 2 are pure guesses, I tend to not do any explicit calculation for them, and just assume that in some hard-hit areas, prices will get in the neighborhood of the 1996 inflation-adjusted level and maybe lower, and in some sheltered areas, prices could stay higher by a significant %.
How does all that relate to the discussion about 50% off peak? Given that home prices at their peak were perhaps 4-6 times what they were in 1996, I see 50% off peak as being near the high end of my expected price range at the bottom this time.
