While one must acknowledge this possibility, I do not believe housing prices will stay elevated while inflation rises.

1) Mortgage rates aren't going down. Risk is being priced now. If you fix the cost of debt and tighten guidelines, income must come up to meet debt/income ratios. I haven't seen indications incomes are coming up at a substantial or even moderate pace.

2) Large supply overhang. Record high vacant for sale inventory and high new home inventory remains. This is despite massive construction cuts by homebuilders.

Past Fed actions have done little to stop the bleeding. How many backup parachutes remain and will future injections be any more effective?

Inflation may mitigate losses, but are unlikely to bring price/rent ratios back to normal.

The main factors that have driven up home prices are 1) availability of credit, and 2) buyer psychology. As far as credit, long rates have been relatively unaffected by the FED lowering. And now that the effective 'bubble' has peaked/burst, psychology has changed, and people are gradually shifting from a speculative mentality to a defensive one. It should be a long time before it shifts back.

Yes, I can understand those arguments, and while I would agree it is likely real estate prices will continue to decline in the short-term, the "money" the Fed has already created has to go somewhere.

The recent runs in commodity prices would indicate the "new money" is going to affect everything. In just a few years (maybe less) we will probably be seeing double-digit yearly increases in the CPI.

I think the situation will reach a point where the upward swing in the CPI will quickly over take the downward swing for real estate. At which time real estate prices will stabilize -- in both real and "inflation adjusted" terms.

People will move to "hard assets" when "cash" is losing its value at a rapid pace.

Welcome to a replay of the 1970s -- probably "worse" this time. (I better check to see if I have any polyester suits in the back of the closet.)

First of all, none of this apply s to 92675. If you ever read the not on all investment scams (I mean portfolios) it always states that past performance is not blah blah blah of future performance. Why? Because if it did everyone would be rich. Graph is interesting, but totally useless for predicting future prices.

Down should have always stayed above 10%; no matter what.
It is important to see people have the discipline to save.

Now I know a lot of people get their down from their parents after college, but if they get into trouble, their parents would probably bail them out anyways.

oh oh.. what's this??http://forums.pelicanparts.com/uploa...1205995641.jpg

This all seems logical for normal housing/real estate.

My only question would be where is the green line going ? What happened to inflation during the last period of rapid enegy cost increases, and are we in a similar situation ?

Any ideas Wayne ?

Agreed, the two lines eventually have to merge for things to be where they ought to be. Projecting outward roughly puts this at late 2010/early 2011. Might be some variation due to runaway inflation (a very real possibility right now), but we're a long way from any kind of bottom - unless you believe the NAR in which case every day is the bottom. . .

I can't think of any reason whatsoever to buy right now. Not a one. There's normally some wisdom to the statement, "when nobody wants something, it's the time to buy" but I think that doesn't apply right now either, because the REASON nobody wants to buy right now is because it's only going to get worse - and the #'s are all there to support that belief!

Speculation has destroyed the "American Dream" for an entire generation, possibly two. That's what we've just witnessed ladies and gentlemen. Nothing less. I'm actually starting to research real estate in foreign countries right now. I think it'll be more likely to buy elsewhere than to buy in the U.S. anytime soon. The weak dollar makes this difficult though, and a difficult thing to project out. But I'm just starting to look at it. I figure it can't hurt. The U.S. markets aren't going to be attractive anytime soon.

I don't think that the "American Dream" of home ownership is gone for a generation. Maybe in California, but things have been nuts out there for quite awhile. Home prices in the mid-west did not enjoy the huge runup and are not falling as much either. If home prices around here drop back to 2001 levels it's just not that big a deal. It may be a 10% to 15% drop.

Home prices only come up in conversations with my friends when they worry about their vacation homes in florida dropping in value. No one is concerned with there primary homes value. I would have no problem with buying a home now in the St. Louis area, expecially with the low mortgage rates. Home prices could drop 50% in California and they would still seam high to me.

I was offered a job in CA back in the 80's for quite a bit more money than I was making here at the time. Even back then after checking home prices, I could not afford as nice a home as I had here even with the increase in salary.

Going way OT here...

My Aunt and Uncle sold a while ago..but the house pretty much sold for what the formula said it was worth - square feet, number of bedrooms, number of bathrooms, age of up-grades, school district & etc. The fact that it was a perfect stone, brick and stucco Tutor (that you could not build today) last house on a super quiet block, next to a wooded preserve, mint condition - seemed to have very little bearing on the price.. The formula said it was worth pretty much the same as a tract house a few miles away - and that is what they got.

I do not understand people.

I have to add 2 trends I'm seeing right now, especially up here in NorCal

#1 Investors, incl (MD's DDS, etc) are looking to buy REO's or within a group purchase these REO's.. there is a level of risk involved however bigger the bulk and the longer the hold the better the investment in this type of R/E.

#2 (scary) many FTHB and other ill informed buyers looking to buy NOD/Foreclosed homes, thinking that if they buy well under the current market value they can still make a solid investment. Unfortunately not the case either..

Even with these graphs and there are lots of them,, it is very difficult to discern what is "current market value" look at how Lenders & Conduits etc. are trying to hedge their approvals via appraisal requirements; eliminating brokers from directly ordering appraisals, and having a "field review" done. It's all speculation at this point folks...

It's just going to take time, even the "stimulus package" (don't get me started on that either) isn't going to change anything.
I have my Brother under severe pressure from his new wife to buy a home. They’ve tried getting me to enable them by buying into this "purchasing a foreclosed home" plan... Not going to happen!

I've been on both sides of R/E banking, Brokering etc.

IMO It is going to take years for those two lines to meet in Ca anyways...

IMHO the only smart investment right now in R/E is to save money, put your liquidity somewhere else and stay away from it....

I just hope there aren't to many people (mostly un-educated in the industry) don't buy into the latest scam of buying foreclosed properties

Sage advice, and perhaps the most honest and selfless I've seen from someone who by his own admission is "in the industry". I think turbo6bar is too. When the time comes (years from now) I may give you guys a call to work with you - for the simple fact that you're honest and not succumbing to the selfish desire to pad your commissions by helping people put themselves in horrible situations.

Kudos to both you guys. It's nice (and refreshing) to see some honesty.

The time to buy is now... The time to sell is not now.

Ummm. No. The time to buy is about 3-4 years from now.

Prices are GOING to fall by 1/3 to 1/2 from where they are today. Get used to this fact.

Prices have dropped about 5 percent. Will drop about 15 percent total. Hang on a bit.

ya, ya, ya.

Cash is not king in real estate, yet. Eventually, yes.

The stuff I continue to hear and see regarding local (West TN) homebuilders is terrible. In the past couple months, I've been in contact with various vendors that service and provide goods for new construction and remodeling. Insulation, window & door, flooring, garage door, etc. Those businesses are not in a recession. They're in a depression.

I can't imagine the terror in bubble zones like CA.

Also, knife catchers are still in action. HUD homes will get snatched up while more competitively priced REOs sit. The Carleton Sheets disciples finish the DVD and immediately buy HUD homes presuming "it is a steal." Life is such.

The amount that prices will drop is dependent upon location, location, location. Of course they will never drop in 92675, but in Riverside they will drop by over 50%, in Newport beach, Newport Coast, they will rise slightly, just like 92675. A very desirable location in what is still a tight housing market (that means many are looking to buy, but few houses are available) will not drop, or if it does, not much. Any home or a fake home (called a condo) will not fare so well if it is in an area that isn't extremely desirable. What is desirable? A single family home, close to work and most other things. More desirable is the same home with a great view. And even more desirable is a home very close to the beach to boot.

A house ON THE SAND, ie you walk out the back door into the ocean within 20 too 100 feet with nothing in between you and the ocean, on flat land, with a lot of nice sand and no trains or low life nearby is in a class by itself and will not decline in value. Financing is not an issue as most are bought with cash. Just like 92675 these are good investments.

The reason 92675 is not going to decline in price to much or at all is that almost ALL the new houses , the ones for sale, are over 2 million dollars. That kinda brings up the average, even if a few older ones sell for less than they did before. There are very large numbers of homes (I exclude condos, as they are apartments, not homes), all over 1 million here. If you exclude the condos, the average would likely be well over 1 million. 92675 is within bike distance of the beach, on level ground, is very desirable to live in, and has many houses in the over 15,000-25,000 sq foot, mega bucks category. Compare that to a typical track house in the desert, over a 2 hour drive to work, in the smoggiest part of CA (Riverside, Lake Elsinore).

The casual visitor to 92675 will see only the slums, the very old part of SJC near the mission (the very worst part of town), much of the better parts is behind locked gates and well hidden from visitors.

So how much will those homes rise in value when sea levels rise 5-10 feet as they're projected to do over the coming years?

So this question of decreasing house values has me very concerned about my future investments and I do think it is the time to stay put, hunker down and get into a cash position.

However, deals are starting to present themselves and although some are easy to ignore, others are more difficult to ignore. I will explain and definately feel free to chime in with advise...

Current situation... live south of seattle, beautiful rambler with an incredible Mt Raineir view and recently finished a 100% remodel. About 2.5 miles from my office, room for all the cars etc. Purchased it about 4 years ago and sitting on enough equity that I think I can ride out the anticipated decrease in home values and still be OK. Current value is probably about $500K, was worth $600K at its peak and I am prepared to see it hit a low of low 4's

Of course the view and the house itself change the desireability. I am sure there will be some depreciation but I think it is a safe place to be in just for that reason...it will always be desireable.

Proposed situation... I have the opportunity to sneak in on a forced divorce sale of a water front home. It is an older home that could benefit from a remodel but the property is great, even closer to my office and plenty of room for the cars etc... could easily picture it being a longer term home if I were able to do a remodel. This house was worth every bit of $1M a little over a year ago. It is being ordered to go for a short sale at $650K. That is already quite a bit of depreciation but I wonder if things will go further and maybe I can buy a lake house that is newer or already remodeled at a cheaper price in the future.

What do you think? Will water front homes be his as hard as other homes during this economy? Should I put some more thought into this or walk away and hunker down like I had originally planned? I would love to think that I bought waterfront property at its low but then again, I don't want to be paying for a $650K house that is only worth $500K.

Thanks, Chris

What would it have sold for in 2001? Check the comps for 2001 or so.

Here's where you are.

http://www.housingbubblebust.com/OFH.../NorthWest.PNG