San Diego Housing Market News and Analysis
Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms
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Submitted by powayseller on August 27, 2006 - 9:48am
If anybody thinks the worst drops are here, and it will level off, you are way wrong!
In the last downturn in California, per Calculated Risk, prices dropped the most in years 3-5. I wish I could find the link.
This thing is just getting started.
I am anxiously awaiting the biggest drops, which will occur in 2008 and 2009, as $1.8 trillion of loans nationwide reset, unemployment rises as housing and retail related jobs shrivel up, and buyer psychology turns to fear. Making it worse, lending standards could return, making it impossible for today's San Diego wage earner to qualify for a median pricedhome even he wants to. Imagine the plight of the home industry if you can only borrow up to 3.5x income.
By 2008, the median loan will be 3.5x the median family income of $70K, so $184K. The median priced home in San Diego will be $184K, purely due to lender's underwriting guidelines. That will put a lot of downward pressure on prices.
We probably saw a 5-10% drop in the past year. In 2008 and 2009, we will definitely see 15-20% drops. After that, we will probably level off.
Anyone wanting to sell, needs to do so before the FDIC gets those new underwriting guidelines in place, and before investors stop buying up MBS packaged with 0% down loans. Because even if the buyer is willing to spend $400K for your house, it won't matter if he can't get the loan to do it.
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