Quick Poll: Year of trough & decline from peak to trough

[davelj]

This has been done before but I haven’t seen anything in a while.

What’s your best guesstimate of (a) the two-year period in which we will hit the bottom and (b) the decline in the median SFR price from peak to trough?

Mine: 2010-2011; 30%-35%

[powayseller]

Trough: 2011-2012

SFR, fall from peak in 2005: 35% – 50%
(90% chance of min. 35% drop, 20% chance min. 50% drop)

[Anonymous]

50-60% drop, peak-to-trough, here in San Diego, with many homes seeing 75%+ drops (a home across the street was bought for $1.4MM in Jan. ’06: 1.1K square feet on 0.2 acre. It was torn down, and will resurrect as a smallish McMansion, at a cost of $500-600K. Post-Depression, it will be worth $400-500K, based on my read of a reasonable rental value for it).

Trough — 2009 -’11.

The good news is that the Depression, in which we’ll have sharply limited ability to borrow as individuals or a nation, will force us to refocus on what’s important. The huge drop in property and income taxes will force us to say goodbye to $9K per year per Headstart child, $10K per year per student here in California for lousy K-12 education, and in-state tuition for illegal immigrants. Hello back to basics!

[JES]

2009-2010, 30% drop.

[no_such_reality]

50 cents on the dollar. (50% drop)

After two more years, I suspect we’ll be in the inflation noise part of the trough, I suspect the most damage will be done quickly this time because of what is propping the housing market up. Our curve is going to look flat in ’06, falls of a cliff in the first part of ’07 and ’08 and then flattens.

However I don’t know if you’ll ever see those numbers published. I think you’ll be able to get a home for half of today, but I think the numbers that are published will be fudged in a variety of ways to keep the appearance of the bubble collapse from being apparent.

After seeing the change from the association on affordability, I’m comfident there are many ways for them to distort the numbers.

Things such as switching from median to average (mean). Using a “seasonally” adjusted price… etc.

Also, the realtors are starting to push sellers to offer “comps”, not comparables, complimentaries as a way of lowering the cost while maintaining the “price”.

[PD]

No recession: 2009 – 2010 35% drop
Recession: 2010 – 2011 45% drop
Depression: 2014 – 2015 60% drop

[technovelist]

Trough: 2010-2011
Drop from peak: 90%

[zk]

Trough: 2010-11
Drop from peak in nominal prices: 25-35% (40-50% real)

[PerryChase]

vrudny, I believe that real dollars means adjusted for inflation, nominal is not adjusted.

[zk]

PD, that’s an interesting answer. I pretty much agree with your first two, but my guess would be that if there’s a depression, prices will drop by more than 60%. I’m not sure what the technical definition of a depression is (or if there is one), but if my impression of what one is is correct, then you’ll not only have severe to extreme job losses, you’ll probably have deflation also. I could easily see the median SD home price drop to 150k, maybe even lower, in a depression.

That said, I think the odds of a depression happening are extremely remote (less than one in five hundred).

[powayseller]

technovelist, what is your reasoning for a 90% drop?

[sdrealtor]

vrudny, I agree on mid-2004 as the peak and that we are already two years into the decline. This is how I knew it was. In Late Spring 2004, I had an investor client that wanted to submit an offer site unseen on a condo in the La Costa area that just came on the market. We submitted the offer within 24 hours of it going on the market. Noone had seen it yet. when I called the agent to submit the offer he said they stopped accepting offers because they already had 35 OFFERS IN LESS THAN 24 HOURS! Prices have been falling rapidly since this Spring. We are down as much as 20% in some areas maybe more already. Overall I’d say down 10 to 15% already is a good generalization. I think this will be over much quicker than most and expect to hit bottom as early as Nov/Dec 2007 after falling 30% off the peak. If not, the bottom should be hit by the end of 2008.

[SD Realtor]

By my tracking the peak for many of the housing types was March/April of 2004. I believe we have already seen up to 20% in many types of housing in various areas from that peak. Other zips continued to appreciate through 2005. My estimate is that we will bottom out in late 2008. I believe we will see 50% depreciation from the highs of 2004. Agreed with many statements that it will be hard to validate because of the way the raw data can be presented to the public.

[powayseller]

Realtors, can you verify:
Condos peaked in late spring 04, SFH peaked in summer 05, +$ 1 mil homes peaked in winter 05 (ripple effect)?

[technovelist]

My reasoning for a 90% drop is simple: the entire economy of the world is based on unlimited amounts of “liquidity” flooding out of the Federal Reserve. As explained by the Austrian School of economics, every great inflation must end in one of two ways:

1. They will stop printing money due to fear of hyperinflation. This will cause a crash in all assets dependent on inflation, and the most illiquid, i.e., real estate, will go down the most due to the attempt to raise cash. See the Great Depression for an example.

2. They will keep printing money even in the face of rejection by the market. This will cause the complete destruction of the “dollar” and end the division of labor in this country (and probably many others as well). In that case, of course nominal prices for real estate, as for every other asset except bonds, will soar, but prices in real money (i.e., gold) will decline dramatically. See any hyperinflation for an example.

The main question, of course, is timing. Looking at the disastrous trends in the federal budget, even with all the tricks they can come up with to make it look better, I believe that we are near the beginning of the runaway part of the inflation. So I don’t think it will be more than a few more years, probably less than five.

[Author]

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