SPECULATE HERE!

[DaCounselor]

“The median as we know is not a great measure.”
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Heartily agreed. That applies to median income stats as well. When I learned that part of the basis in determining median income includes anyone 15 yrs old and up, it sure explained to me why SD’s median income numbers have always seemed so low.

I steer clear of median analysis. I just like to see the actual sales history of homes in a particular neighborhood. It’s not hard to follow, especially in planned communities. That’s where the real story is, not in the median.

[PerryChase]

I remember the peak of the last RE boom to be 1989. In 1990, builders started shaving 20% off of prices but the median went up. It felt very painful because like-for-like house dropped about 30% in many case from 1989-1992. The median held because people were spending the same amount but they were getting a lot more for their money.

My guess is that owners had the wherewithal to hang-on for a few years but when the recovery did not materialize, they gave up. That’s why the median didn’t drop meaningfully until 1993.

In order to get the best deal, you have to wait until owners “give up.” The psychology now is that we are “taking a breather but prices have nowhere to go but up.” I don’t expect the psychology to turn decidedly negative until 2010.

One of my idiot friends just bought a Downtown LA condo, even though his DC condo is vacant. We’ll see how long it takes him to regret his decision. He can rent-out and hang-on to the DC condo but it will bleed him dry for years. Not fun.

http://mysite.verizon.net/vodkajim/housingbubble/san_diego.html

[little lady]

I tell my brother(who now owns 3 houses, 2 of which he bought in 05/06) that the markets tanking. He never even bothers to look and really doesn’t seem to care. Though he makes about 200k a year, and his girlfriend( a charge nurse) makes a good living(shares the mortgage on the 2 latest purchases) he’s in hock up to his eyeballs. Because he bought his first house in ’90 at the height of the last bubble…..135k(’90)now worth about 600k(maybe a little less).

How can we speculate that there will be a depression type downturn when there are people out there paying these amounts and don’t even care keeping this market afloat?

[cr]

Lots of reasons:

Because most people don’t make 200K/year.

As more and more people default, the feel-good-era of “buy a house and rake in the dough” will start to reverse, and people will more apprehensive to buy.

We’re just starting to see the downside of the no credit, no money, no problem lending practices.

I don’t see how the retiring baby boomer generation can do anything but worsen the downturn. There will be a disproportionate amount of people on Medicare, and social security, who CAN’T afford million dollar homes to retire in. If anything, the smart ones will cash in now on their equity, rent or downgrade to something smaller and live of the gains for the rest of their lives.

I venture to say most retirees don’t buy a more expensive home to retire in.

Add to that weak dollar that will likely necessitate higher rates to attract foreign investments.

My speculation? This drop will be harder and faster than the 80’s or 90’s. To put a number out there, 10-15% this year, and that much in 2008.

Incomes are WAY below what is required to afford an “average” house.

[Chris Scoreboard Johnston]

Chris Johnston

So be it JWM, maybe you should not jump another poster so quickly if you do not have much conviction behind your views. I suspected your response would be along the lines of a pass on my offer. The offer stands to anyone else about the OC medians fate during the downturn.

None of us knows what the future brings, my opinion is no better than anyone else’s. Make no mistake, if we get 20% it will be a brutal recession we are facing, with widespread unemployment. I think alot of people fail to take into account the broader effect even a 20% equity erosion would have.

I lived through the last one up here and saw many friends part with millions of dollars. It could very well happen again.

[Bugs]

We are almost halfway to the 25% mark (off peak prices) in many of these local market segments, and it’s only been 18 months. If you look at the last downturn, the rate of decline actually picked up during the latter half of the downturn. If that holds true 2007 could possibly be just as bad or worse than 2006, and that includes the offsetting effects of a mini-rally this spring, if it occurs. A 25% net loss off of peak pricing goes far beyond any definition of the “new paradigm”, the “soft landing” or even the “new normal” that the permabulls have been trying to sell us for the last few years.

This downcycle will either reverse this spring (and I can see no reason why it would do that), or it will go into an even steeper decline.

Personally, I think it could end up being a 40% or greater decline in value between price decreases and inflation. If one believes in the return-to-trendline and a subsequent overcorrection it could be as much as 60%.

[Anonymous]

Agreed, foreclosures have had a minimal affect so far, but every indication is that they will soon drive prices down further. Also, we need to factor in the possiblility that the economy will slow/possibly go into a recession, or that interest rates may rise.

[JWM in SD]

Maybe you need to sharpen your reading comprehension skills there Chris. What I said was that I don’t make bets with people that I don’t know…nothing to do with my convictions about where the economy is heading and it is heading for a severe recession given the scope of this credit bubble….yes, credit bubble, not housing bubble. House prices are merely symptom of the liquidity that’s been pumped into the system via M3 by the Fed. This will not end nicely and OC will suffer severely because of it’s dependance on Real Estate related growth over the past several years. It will switch from being a virtuous cycle to a vicious cycle with several feedback loops ranging from house prices through consumer goods.

I suggest that you start reading more about economics before you suggest that OC will be spared.

[powayseller]

JWM is right.
OC prices are likely to drop 60%.

However, I caution anyone against using the median to measure the price drops. The median is a distribution number.

As Perry said, when people spend more money, it’s not because housing prices rose, but because they got more house for their money.

As Bugs said, the price drops are already starting.

Measure the price drops by following the prices of some neighborhoods and homes over time. If data is your gig, forget the median and keep an eye on the OFHEO and Case-Shiller indices.

[Author]

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