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.

Schahrzad Berkland

Submitted by powayseller on August 28, 2006 - 8:10pm.

sdrealtor said, "All the points you make relate to the sellers distress rather than the buyer's willingness to buy. I am looking at things from the buyer's side which your comments ignored." WRONG, FONG! Read my post - the whole thing was about a buyer; they won't buy depreciating asset.

biggest drops 2007 - 2008 as ARMs reset, inventory doubles, buyer fear sets in; all those looky loos at Open House will be sitting at home next year; sales will keep dropping;; fear in reverse; tighter credit; months inventory puts more downward pressure, as does REOs;

how can you get a feeling about the future? one cannot "feel the future", it's Delusional Dreams.

Submitted by powayseller on August 28, 2006 - 8:14pm.

median is lagging; yrs 3-5 will be biggest drops in median if history is a guide; we are in year 2 of slowdown, and 2007 and 2008 will be biggest losses IMO

i covered slowdown at length, search archives; started 04/05 at low end

basically i agree w/ you

Submitted by sdrealtor on August 28, 2006 - 9:22pm.

Exactly my point. Because the median is lagging you might see the biggest drops in the median occur in 2007 and 2008. However, in real time the biggest drops are occuring right now and will continue through the end of 2007. I don't care about the median, I only care about what a specific house can be bought and sold for on a given day. We are arguing the same point

Submitted by L_Thek_onomics on August 28, 2006 - 10:21pm.

Yes, the median price is not a good indicator of changing markets. As always, when the housing market looses the steam, the more expensive markets turn upside down first. The largest proportion of sold homes are in the higher price ranges, because of more attractive discounts. This trend pulls the median upward, creating an absolutely misleading, almost useless "indicator". The opposite is true for the lowest median price. When the median price hits the bottom, the best deals are already gone...
L Thek

Submitted by FormerSanDiegan on August 29, 2006 - 10:03am.

When the median price hits the bottom, the best deals are already gone...

Not really. 1995/1996 was a great time to get a deal in SD. Plenty of deals, buyers' market. In April 1996 we looked at 30+ homes, asked for and got a 90-day escrow so that we could save up the remainder of the down payment 5% and finish our lease.

Submitted by powayseller on August 30, 2006 - 5:13am.

Delusional Deep-Slumbering Dreamer sdr wrote "in real time the biggest drops are occuring right now and will continue through the end of 2007." Keep dreaming.....don't let me disturb your sleep... it's nice and warm and cozy in that bed and dreamworld now....but in 2008 a bucket of cold water will splash on you and jar you to ARM-Reset Reality.

That's the land of $2 trillion of nationwide ARMs resetting, biggest rise in NODs and foreclosures, 10% unemployment, tough lending guidelines, and buyer fear, i.e. nobody wants to buy.

Remember how the bottom of asset bubbles end: nobody wants to buy. Fear reigns. Baby, we've got a loooooong way to go to asset bottom.

Signed, Arrogant Powayseller

Submitted by no_such_reality on August 30, 2006 - 7:09am.

I think there is backlogged demand out there too. I also think it'll vaporize as the numbers quickly head to their mental numbers. More importantly, it'll vaporize as they realize, they don't just have one good deal at their price, they have a dozen in the neighborhood they're looking at.

Submitted by sdrealtor on August 30, 2006 - 10:50am.

Arrogant Fear Mongering Powayseller,
I only report on what I am seeing. If things play out as you believe I will be more than fine. I am in a great position, have a handful of business opportunities in development the last few years and see only great success ahead for my family not grey clouds. If there is a cold bucket of water, I will enjoy taking a drink. If they dont play out as you believe I will also be fine.

You have everything at stake at being right while I have little or nothing. You live in a world dominated by fear and make all your decisions that way. You cannot see past it and dont understand that there are many people in this world that dont share your fear based persona. Fortunately, I am not in such an unenviable state. The most successful people I have met in this world (there have been many) do not operate out of fear. They understand how to create wealth in good and bad times. They have confidence in their abilities which you don't. I hope you one day get past all your fears because life is much better that way. Not being afraid to take chances does not make someone a fool.

I sincerely hope your new endeavor works out well for you. You are obviously very bright, but as they say, that and a buck will get you a cup of coffee. Also remember than when you start you business, the key to its success will be your sales abilities.

Best of Luck

SDR

Submitted by HLS on May 21, 2008 - 10:43am.

Interesting thread, is it time to review the prediction made 21 months ago ???

Submitted by cv2 on May 21, 2008 - 11:09am.

I have to say I miss powayseller's insightful comments on this board. I view her new blog daily. She changed her tone a little bit since got her realtor license but she is still pretty honest and straight talking.

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