in theory if I could afford a house at current prices (afford as in 20% downpayment + 30% fixed mortgage) one could buy a house if they are going to stay put in San Diego for 10 years. They might come out okay.
The number of people who would qualify in the above category is a very small number (1% of population)
Even if they did qualify, why put yourself in a position where you’d need the 10 years to recover to where you were today? If your home was the same price 10 years from now, inflation would have eroded the value significantly. Plus you have the opportunity cost of the 20% downpayment and the large differential between rent-mortgage even at 80% loan-to-value.
Dan seemed pretty good, except he didn’t acknowledge the rampant price drops, and return to 2004 and 2005 values. His version of the story is that price drops are merely sellers who had overpriced their homes, thinking they were worth more. An interesting point he made is that 100% financing is more likely to cause foreclosures, because the borrower has nothing to lose by walking away. How many 100% financing loans are coming due in the next few years for adjustment?
Why did Shiller say twice that he wasn’t sure if prices would go down? Is he trying to balance the one-sided trades on his futures index, or was he always cautious about predicting price movements? He emphasized psychology as the driver of prices. What factor triggers a change in psychology? Shiller said it’s hard to identify a trigger; we still don’t know what triggered the 1929 and 1987 crashes.
A realtor from the Bay Area said some very good homes are selling for 4-5% off.
NAR economist Lawrence Yun was straight forward about the declining market. He used a new term: sudden transition. He warned the Fed that further increases in interest rates could tip the economy into recession, due to its damping effect on MEW.
Shiller said he wasn't sure because that's circumspect bear speak. He didn't want to have an "I told you so" attitude of enjoying being vindicated.
In the end, Shiller also talked about Australia being a harbinger for what's to come for Real Estate in America. He was surprised that Australia slowed down then picked up again. I feel that Australia is very different from America because Autralia is small (only 20 million population, so smaller than California). Well-to-do Asians throughout the Pacific region have been buying up properties thus proping up the market.
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