We could see a 22 year decline of 80% of prices, if we copy Japan.
Japan’s houses doubled nationwide, and tripled in the largest cities, between 1986 – 1991. Since then, prices have been falling. Prices fell 40% in the nation, and 65% in the biggest cities. Some homes declined 80%! In 2004, prices were still declining in Japan. I don’t know if they’re heading back up yet.
Also remember that extreme situations often overshoot when they correct. If housing today in SD should be 50% of today’s prices, we will overshoot and end up at 40%, or 35%, etc.
We may have many reasons why we won’t copy Japan,but the lesson is: do not think a housing bust is short-lived. It takes years to hit bottom.
Be careful to not buy in too early: check leading indicators from the MLS: DOM (true days on market, including all the expireds), inventory, and Housing Affordability Index. When the tide turns on the data, and when everyone says you should never EVER buy real estate, then take the cash you’ve saved up, and get back in.
