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The only way the current price structure can continue on without outright correction is if the dollars comprising those prices decline in value. If that’s the case, the cost of all services other than RE will increase while RE prices remain stable. Not only will our products be less competitive of a global scale, but the value of the assets purchased prior to the price distortion will decline at the same rate. We will, in effect, be forcing the people who had equity (in value) prior to the distortion to redistribute part of it to subsidize the people who would otherwise suffer a loss.

Correction of the wage/price distortion via inflation is not the “cure” that any non-FB should hope for. Let the people who contributed to the problem pay for it and please leave the rest of us out of it.

[Bugs]

Please note the difference between “demand” and “effective demand”. Effective demand is a stool with 3 legs: desire, personal means, and financial leverage. Personal means includes factors like wages, downpayments and personal credit. Financial leverage obviously deals with the availability AND TERMS of the credit necessary to bridge tha gap between downpayments and sales prices. Take one of those legs out and the stool won’t stand.

If/when the foreign investors stop propping up our credit markets our interest rates are going to go up. If/when lenders and secondary investors start taking heavier losses on their RE – backed investments, interest rates will go up. Already, employment/wage verification and other underwriting criteria are going up. The reduction or even outright elimination of liar loans will have an outsized impact on the number of people who can buy at any price. If the U.S. Government has to close down a bunch of lenders because of losses in their residential portfolios, the remaining lenders could easily be compelled to return to hardwired 30% income ratios for purchases.

I also wouldn’t get too attached to the idea that a sub-8% mortgage interest rate is an economic entitlement that can be counted on in perpetuity. We went for a long time thinking that 10% was a good rate. I’d be downright shocked if by the end of this downcycle we weren’t back well above 8% interest rates.

Contrary to a couple comments about rents, I also point out that rental rates can and do decline during times of distress. It happened here during the mid-90s in the apartment market (and to a lesser extent in the house market) because it was overbuilt during the 80s. Now that our houses are overbuilt and apartment rentals have declined in some areas, I think that the recent gains in the house rental market are very squishy. It’s a stopgap measure attributable to investors trying to ride it out and the demands of the mortgages.

Another reason I think it’s squishy is because the impact of the declining market has only barely begun to be realized among the ranks in the RE and related industries and in those businesses that are dependent on discretionary spending. I don’t think it’s an overstatement to say that the cumulative effects of the decline of the RE industry could well turn out to be as dramatic here in SD as those caused by the decline of the defense industry during the last downturn.

I think we’re a long ways off from bottoming out.

[Bugs]

I’m a little late to this thread but I agree with Steve B. RSF and La Jolla didn’t get it as bad as the areas on their periphery, but they did take some losses. I wouldn’t characerize any area or any price bracket as being immune; some are just more vulnerable than others.

[Bugs]

The commercial markets have been lagging and I’d say the lag time is longer than 3-9 months.

What type of property is it?

[Bugs]

PS,

In answer to your question about which areas picked up first, it usually goes like this: last areas to drop will be the first areas to recover. Detached homes will rebound before condos. Areas close to employment will rebound before the outlying areas.

There is a possible exception to this that I can’t guess one way or the other, and that is the fate of the homes that are currently in the $1.5mil+ range. Wages weren’t the main factor driving these prices to begin with, and the avilability of credit when the markets to recover would have a huge impact on the ability of buyers to purchase.

[Bugs]

As I was saying just a month ago, the passing of July 1 marked the end of the use of yr2005 sales data in appraisal reports. That’s why we are starting to see some really significant discounts in the sales; generally speaking not even a poorly developed appraisal can “justify” a price at the peak any more.

The downhill momentum is picking up and there are no signs that it will slow up or reverse any time soon. There will be plenty of warning when it turns around for those people who are looking for it. Time and patience are on the side of the buyers and are against the sellers.

NARs mantra right now SHOULD be “Now is a great time to sell real estate!!”

[Bugs]

The media coverage is going to exacerbate the declines, just as it did for the increases.

[Bugs]

What makes anyone here think the correction is going to be based on rational decisions? Rational decisions didn’t build this house of cards and I’d be surprised if the demo is going to involve any either. The corrolary to irrational exuberance is irrational fear, and I think the correction is going to run on that more than rational thinking.

[Bugs]

… and then there’s steamed crow, fried crow, crow stew, crow chowder, creamed crow with peas, chipped crow on toast, BBQ crow, peanut butter and crow…….

[Bugs]

Depending on the interest rate that just about does it. I’d probably peg it right equal to the long term fixed interest rate. The extra costs of taxes, insurance, and HOA dues are offset by the potential for price increases at the average rate less inflation.

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Not at the rate it’s currently going.

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I think Santaluz will be in the same position this time that Fairbanks Ranch was in last time, and that is as second fiddle and distant pretender to Rancho Santa Fe Covenant areas. Lots of people there bought when it cost a lot less, so there’s lots of room for price contraction without too much bloodshed.

[Bugs]

I’ve been saying the same thing all along. The only difference is that things seem to be moving much more quickly this time.

[Bugs]

If there’s one group of people who should be held accountable for their public comments, it’s these guys.

[Bugs]

If wages and costs for everything (but RE) are increasing it only means those dollars are devaluing. The nominal price changes in RE may not be as much but the value will still have declined because you’ll need more 2011 dollars to buy the same stuff that you can buy now with fewer 2006 dollars.

In effect, inflation forces the masses to pay for the mistakes and the greed of the fools, while making us even less competitive in the global economy. That’s why I’d prefer more correction and less inflation.

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