[(former)FormerSanDiegan]

Nice example of a 4.5% loss in value, plus commissions in the 6% range for a total loss of >10% OUCH !

HOWEVER, let’s not get ahead of ourselves that this is 2003 pricing. The low-end asking price now is 4.5% below purchase price in November 2004. SD median price increased by 20% from Dec 2003 (the high for that year) to Nov 2004. So your example is still well above 2003 pricing.

This would have to sell for about $500,000 to reach December 2003 prices. If it’s still on the market this time next year I guess that may happen. But we aren’t there yet (at least for SFRs).

[(former)FormerSanDiegan]

Now this is bona-fide 2003 pricing !

[(former)FormerSanDiegan]

Actually, housing moving at or below inflation makes perfect economic sense to me. Remember that the structures depreciate and have to be maintained and eventually rebuilt. Only the land should appreciate.

Perry – OK, so where do I find a house without the land ? Used mobile homes are the only example I can come up with. So, yes I agree with you that used mobile homes should depreciate. Otherwise, I don’t buy that houses should deflate from trough-to-trough or peak-to-peak in RE cycles.

I have to say that the likelihood of hitting 1998 prices, which correspond to a 15% real decline from previous null (1995 prices) is less likely than the NAR predictions of being correct.

[(former)FormerSanDiegan]

4plex – The inflation in my example is largely already in the books. I am comparing 1995 to 2008. You only have to guess a couple years in that scenario. Not really stretching that far into the future.

[(former)FormerSanDiegan]

Actually SD prices in 1998 were still below the long-term trend. They were 20% above their absolute low in 1995.
So, let’s compare from the prior low. Prices in 1998 were 20% above the prior low. If we return to 1998 prices in 2008, that would imply a 20% return over 10 years for an equivalent compounded annual rate of return of 1.84%.

Assume about 3.25 to 3.5% inflation, that’s negative 1.5% or so compared to inflation … COMPOUNDED ANNUALLLY.
Over 10-13 years, that would be about 15-20% cumulative negative return relative to inflation.

So, when you say that prices will return to 1998 levels, what you are saying is that housing prices will deflate by 15% in real terms BELOW the prices observed in 1995 at the previous cycle bottom .

[(former)FormerSanDiegan]

In 1998 the nominal prices of homes in San Diego were just getting back to their previous peak from 1991. If prices are at the same nominal level in 2008, that would be 17 years with zero increase, a real decline of at least 70% since 1990 … don’t see that happening.

[(former)FormerSanDiegan]

Now the question is the same as I asked people in 1999: how will you know when to get out of the market? If you can ride it to the top and then get out before it drops, you will have done better than I. (“I” is correct grammar here)

I would argue that a long-term diversified portfolio (though boring and not interesting from a blog-reading standpoint) is far better than trying to prognosticate.

I actually have had funds continuously in the market since about 1994. I did not get out in 1999 or 2000 or 2001, and have been putting retirement funds in at a level of 20-25% of my income since 2000. I donlt think that you need to get out at a top if you are diversified and have a long-time horizon. Having 20% in cash in 2000-2002 turned out to dampen the downdraft for me to about 15% of my portfolio by 2003. This was more than made up by the run we’ve had since 2003. As long as you do not put all your eggs in one hot basket and guess wrong (gold in 1981, cash in 1995, tech stocks in 1999, real estate in 2005) you will do fine.

Boring, but effective.

Disclaimer: I am not a broker, a shill for any financial services company or an aspiring financial advisor. I am a statistically informed, fiscally thrifty engineer.

[(former)FormerSanDiegan]

Ummm thats 105%.

Josh – That’s why I said it gives you a 5% head start 🙂

[(former)FormerSanDiegan]

This board is good for seeing others’ ideas. I doubt that any intelligent person would blindly follow any advice dispensed here. For that matter, I think it is foolish to depend solely on any single source for advice.

My Advice for asset allocation
35% Cash
35% stocks
35% Property

That gives you a 5% head start on everybody else 🙂

[(former)FormerSanDiegan]

Groceries from Home Depot ?

I’d call that a dumb move. Maybe a little desperate. They should concentrate on returning to the days where the employees were actually helpful. Can’t stand that place anymore.

Hopefully they are not putting groceries on the same aisle with the rat poison, bug sprays and fertilizer.

[(former)FormerSanDiegan]

n_s_r –

Your reasoning for home prices comparing median income to median home prices using lender qualifications is flawed.
The problem : Median income is based on ranking ALL households. Homeowners make up ~60% or less of households in San Diego.

Therefore the folks in the median income range are at the very bottom portion of the home buying chain. Think starter condos when comparing to median incomes.

[(former)FormerSanDiegan]

The number of first-time buyers putting 20% down has always been a small fraction, IMO. The exception woudl be those who receive support from parents to purchase their first home. Like PD, we purchased our first house with 5% down. Next house 4 years later 10% down. Third house 5 years after that for 20% down.

We were third-time buyers before we put 20% down.

[(former)FormerSanDiegan]

Update :

S&P at 1374, only 774 points to go for S&P down to 600 by spring 07

[(former)FormerSanDiegan]

Are you in San Diego ?

Here’s a Zillow eval on my rental house, along with the zillow chart for the zip code and San Diego as a whole.

All are decidedly DOWN.

[img_assist|nid=1872|title=Zillowed|desc=|link=node|align=left|width=100|height=61]

[(former)FormerSanDiegan]

Bugs –

a loss of equity value through price inflation is just as much a loss as an outright price correction

I don’t think this is true if the property is leveraged.

If it is leveraged, then the real value of the debt is also reduced at the same rate.

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