Half off
I remember late 2005 as the time I decided the market was out of control and about to crash hard. Looking back at prices, you do see an inflection point in late 2005-early 2006, with more houses selling for their asking prices (or less), compared to the endless bidding wars we observed in the first part of the decade. Back-of-the-envelope calculations told me prices were inflated by about 100%, i.e. houses were selling for twice what they were really worth in a balanced market where incomes actually sustain the mortgages people are paying. The old 3x earnings rule hasn't applied for a long time in the Bay Area, but we got close to 10-12x at the peak, and now everybody is paying the price for the collective insanity that gripped the state (the nation, and the world--just look at Ireland, Australia, Thailand, Vietnam and Spain).
It turns out that embattled bank Lehman Brothers agrees with me. Except it took them 3 years to come out and say it.
To Alameda real estate agents: spare yourself the embarrassment of company-line drivel like "Alameda is different" and "prices are holding steady." Yes, I am sure you can find the occasional overpriced East End or Fernside house selling at or over asking. So can I. I can also point to dozens if not hundreds of houses selling at a loss and/or below their inflated asking prices--just look through the archives on this blog.
Here's a question for everyone reading this, especially those of you waiting for the market to drop back to normal before you buy. What are your thoughts on how much prices will fall, and do you have a target date for that elusive "bottom" real estate professionals claim we've reached?
It turns out that embattled bank Lehman Brothers agrees with me. Except it took them 3 years to come out and say it.
"[The Lehman] base case assumes national home prices drop 32% peak to trough, vs. 18% to date, with California down 50% vs 27% to date."From Lehman conference call via Calculated Risk. An excellent analysis of rents, income to debt ratios and related issues is available there as well.
Ian T. Lowitt, Lehman CFO
To Alameda real estate agents: spare yourself the embarrassment of company-line drivel like "Alameda is different" and "prices are holding steady." Yes, I am sure you can find the occasional overpriced East End or Fernside house selling at or over asking. So can I. I can also point to dozens if not hundreds of houses selling at a loss and/or below their inflated asking prices--just look through the archives on this blog.
Here's a question for everyone reading this, especially those of you waiting for the market to drop back to normal before you buy. What are your thoughts on how much prices will fall, and do you have a target date for that elusive "bottom" real estate professionals claim we've reached?
Well considering that Lehman Bros is likely to declare bankruptcy before the market opens I don't know how much faith I'd put in their predictive powers. I think prices are going to decline until a slightly above average household can afford the average house. So I predict houses to come down to about $350K-$400K on average. Last I read, the average house in Alameda was going for $550K, so I don't think thats too unreasonable.
Another great real estate crash blog, DoctorHousingBubble, has great statistics, graphs, and presentations showing that the calculated bottom isn't until early 2011. The mortgage meltdown will continue this year and next with the Option ARM implosion just beginning.
Agents will tell you that the bottom is just now in Alameda. Don't believe them. Every week there appears a new listing that makes one scratch their head and react, "wow - that's a steep cut." It will continue happening.
I'm waiting for that average to fall to the 3xIncome range and for inventory to shrink to a healthy 4-6 months.