Reversion to mean

[bubba99]

Californians have always paid more than that elsewhere in the country. We are used to paying 50% of our incomes to own our dream house. That is part of the reason California real estate is traditionally more expensive. But the bubble is not a California issue, but a national one. The Federal Reserve injected a lot of liquidity and credit into a system that had been stable for 30 years. The bubble has been since September 11, 2001 and is a Fed bubble that caused a real estate bubble on purpose.

The mean is not an issue of changing history, but explaining where we would be if the FED had not given away money to stop the effects of Sept 11 on the national economy. Prices doubled since 2001 because rates dropped in half. Rates are now returning to the “mean” and expect that prices will too. The same general area they were in 2001 before the shock to the system.

[sdrealtor]

If you say the bubble started 9/11 and that prices will return there you are ignoring that 6+ years will have passed since then. You need to factor in for normal inflationary appreciation (whatever that might be) over 6 to 8 years which is when we should get back on track.

[sdcellar]

A decidedly narrow view, but I know when we bought our home in 2001, I was worried that housing seemed a bit overpriced at that time. The house had certainly appreciated substantially since the previous purchase in 1998. I rationalized it has improvements made to the place and recovery from the decline during the 90s (since curves go both ways), but it still seemed bubbly to me (even though I didn’t know the term at the time).

Anyone else who thought things started to look funny in 2001?

Also, didn’t the only real hiccup in the last five years take place in late 2001 before things started taking off again? I feel like the stock market boom stoked the housing market, 9/11 cooled it off, and subsequent measures and reaction to same got it going again.

[kev374]

when I said wages are stangnant I meant inflation adjusted. A 25% increase in income over a 5 year period just about breaks even with inflation and isn’t really any wage growth in real terms.

In addition the population of Orange County has increased only by 7% or so between 2000 and 2005 which has been the slowest increase in decades.

People are NOT moving into OC by the droves, that is completely an URBAN LEGEND!!!!

There are been a tremendous amount of overbuilding of late and right now, 60,000 new condos are slated to come to join the huge inventory pool within the next 2 years or so. Talk about a huge amount of surplus that nobody wants to buy.

My personal opinion is that unlike previous declines this time around there is going to be a very sharp initial decline in prices, probably 20% over the next 2 years, as the people that bought more than they could handle will be forced to foreclose after which we will have a slow protracted decline which may last another 5 years. We’re probably looking at a 7yr or longer downcycle.

List prices are already being cut on many properties by 10% or more over comps that sold in the summer 😉 That’s your 10% decline right there and it’s only been a few months now.

[powayseller]

sdcellar, I noticed the spike between 1999 and 2000. We looked at homes in Feb and March 2000 in Gatewood Hills in Rancho Bernardo, in the mid 300’s, which had sold in the mid to high 200s just a few months earlier in the summer of 1999. These were 1800 sq ft homes with backyards only 5-10′ wide. I was really surprised about the sudden jump in price, and didn’t know why it was happening. The realtor kept saying we had low inventory, but I didn’t know why we had low inventory.

I have inventory data for San Diego going back several years, and when you look at the chart, you can see that we had one or two cooling-off periods. Then, something happened to reinvigorate the market. So Robert Campbell was right in some of his incorrect market reversal calls; he really had no way of knowing that the downturn would be reversed by a lower Fed funds rate and the popularity of exotic loans.

[North County Jim]

Dr. Roubini defended me today on his blog.

In his defense of you, did he cite your “strong and witty” writing style?

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