Another Perspective

Everybody’s doing it.

Moms, dads, know-it-alls, know nothings, the useful, the useless, dogs (with the help of their owners), families, companies…the list goes on.

What is it that everyone is involved in these days?   Blogging I tell ya!  It seems there are at least 12 million blogs out there and you can find one on just about every topic.  Many of them overlap.  And if you’re intersted in a topic you can read several and get a vast amount of information on the blogs.

So today I’m opening the door for a fellow real estate blogger to speak his mind.  I asked South OC Tracker to share his opinions on the market today and what he thinks.  Be sure to check back later this week where I will respond and give some thoughts into the same questions.  Here are his thoughts:

Just who is he?  A trained journalist who has a good deal of real estate education.  Who decided in February 2007 to launch his real estate blog and thus, SouthOCRealEstateTracker was born. 

Does South think we’re close to the bottom yet?

Judging by history, no. The last downturn lasted roughly six years from peak to bottom, and that included a fairly stagnant period at the end. If you go squarely off that precedent, we won’t see a true bottom (in hindsight, of course) until perhaps late 2009, 2010 or even 2011, with the market entering recovery mode maybe sometime around 2012 or 2013, depending on when the bottom comes.

But, considering how much larger the upswing was this time, and the fact that the triggers for each downturn were a bit different, all bets are off as far as I’m concerned. I could see prices falling faster and recovering faster, or I could also see values slowly eroding for a much longer period of time. I hope the bottom happens sooner rather than later so we can move on to the recovery phase.

Just how low does South think prices will go?

The local housing market swung too far out of line with fundamentals, and we are witnessing the inevitable correction. Orange County is still a good place to live and commands a premium over many other parts of the country, but you’ve got a problem when local incomes as a whole do not support prices under normal lending standards.

There should be a floor to pricing when the monthly cost of owning is slightly above or roughly equal to the cost of renting a comparable home (believe it or not, it has happened here before), but there is no reason to suspect prices can’t and won’t over correct and fall even below fundamentals, as they did during the last down cycle. Income levels will meet home prices somewhere – the question is whether home prices will fall quickly to accomplish this, or whether they will stay relatively inflated but stagnant for a number of years until incomes can catch up to achieve equilibrium.

Here’s my tin foil hat-wearing, back-of-the-napkin guesstimate: The single-family detached home price will dip below $500,000 within the next 2-3 years (DataQuick’s latest data pegs it at $570,000). Before you call this crazy – and it very well might be – the median would have been on track to reach “only” about $484,000 in 2009 if it appreciated a healthy 5 percent every year since 1982. A median of $500,000 would be roughly a 32 percent drop from the peak in June 2007. For reference, prices as a whole fell about 27 percent during the 1990s bear market.

What does South think will help the market recover?

Foreclosures need to level off and decline, for one, though it’s a tough proposition considering the option ARM mess looming on the horizon. And, as long as we’re losing jobs locally, I don’t see enough buyers entering the marketplace to absorb the excess inventory created by foreclosures, particularly since a chunk of today’s first-time buyers were already “fished out” by the allure of real estate a couple years ago when the market was riding high. Investors will also play a part in forming the bottom, but until they can buy properties with reasonable downpayments and be able to rent them out and achieve positive cashflow right away.  It is best for the market to be allowed to work itself out, so we can return to regular, sustainable appreciation.

  • Lori

    Well-said, South OC Tracker. I just hope the bottom comes sooner than later, because we are ready to buy, but at a non-inflated price. I’m not buying ANYTHING that is at 2003 prices or later. I will wait as long as it takes.