suuuude, 3) The date from which you start the 1% growth is important, and can affect the analysis significantly. How did you come up with it? 2003 seems random.
I don’t know where you got 1%. I am extrapolating wage growth at 3% annually, which is higher than it actually was historically. Schiller’s research shows the national housing prices increase 1% real annually, and this was used by Charles Smith, not by me. I used Rich’s prices-to-income ratio.
This thread is about reversion to the mean. The demand argument is all part of it. When bubbles are on their way up, demand is heightened, as buyers are in a frenzy to get in before they are priced out. In a decline, demand works the other way. Buyers start to stay home, so to speak, as they see prices fall and don’t want to buy today, believing that prices could be lower tomorrow. For this reason, although prices are LESS now than last year, the number of buyers KEEPS DROPPING. Why isn’t demand up, since prices have come down so much? So the entire reversion to the mean plays out because psychology shifts on the way down too.
sduuude wrote In fact, if you look at all the sales recorded in 2004 and 2005, you start to realize that for every suicide loan, there is someone with a small truckload of cash – each of whom is a potential buyer in the coming down cycle, even if interest rates are high. I don’t see that at all. How did you get this conclusion?
As to your last comment, many people who sell are leaving San Diego,as I keep writing about. We had 44,000 people moving out in the year ended June 30, 2005. I haven’t seen the data this year, but going by anecdotes from a half dozen friends/acquaintances, it is a lot more. I never heard of people leaving, and these last few months, so many people ar telling me that so-and-so left San Diego for a cheaper city. We have 30% of our listings vacant. So sales are down because the people who sold their homes left San Diego and are not buying anothe home. Some stay and rent, driving up rental demand.
