patrick.net

20-25 years.
30-40 percent.

It all comes down to the Case Shiller index. Wait for this graph to reach 100 or below. My guess is another five years than flatline for ten. Hopefully, it will be sooner. It would have been if not for the government interference.

I agree....5+ years then flat line!

According to the graph above, prices would have to fall by 33% to reach fair market. I think it will overshoot and fall by 50% from current prices. It already has fallen almost 50% from peak prices.

Dan8267 says

My guess is another five years than flatline for ten

Can't disagree.

I just noticed that the Case-Shiller Index looks like morning wood popping up under the sheets. These are the things you discover at 3 a.m.

Another graph, Investor Sentiment

We were in "fear" about a year ago. Somehow, some people slipped back into denial. Supposedly though, this summer is going to be the summer of "desperation" sales and if they fail then it's panic time.

Three years from now it will bottom out and then flatline for many more. If you look at the trend in the S&P chart above, without the government interference (starting 2 1/2 years ago) the home price index would probably now be at the 1987 level. Now that most government stimulus has ended, the trend has a clear path down.

CA is not my area of expertise, but I'd go by the graph I linked to above at Zoy Zoy and select the "San Fransico - Oakland - Fremont, CA" graph.

That graph will show the Case-Shiller Index data for that region divided into three tiers as well as the average of the tiers. For example, the low tier housing is back to year 2000 levels (about the beginning of the bubble), the mid tier is back to 2002 levels, and the high-end tier is back to 2004 levels. From that, I'd say the crappy houses are close to fairly price, the mid-level houses have a modest fall to come, and the McMansions have a substantial fall to come although they've already fallen 50% from the price increases during the bubble.

The good thing about the Case-Shiller Index is that you can get more regional information. Unfortunately, it's still limited to the 20 metropolitan areas, which may be a bit off for surrounding areas. I live in Boca Raton, FL, so I go by the "Miami, Ft. Lauderdale, Pompano Beach, FL" data, which is the closest to me. By that data, prices in my area are only back to 2004 levels, well into the bubble.

Yes, some places will always be expensive to live in like Silicon Valley and New York City. However, even in these places real estate prices do fluctuate greatly. NYC has seen numerous real estate busts. I still believe that you can tell how much price appreciation in these areas is due to the housing bubble by looking at the Case-Shiller data for that area.

No one can really say when and how long ,.. we are at the whims of the policy puppet masters. The masters of finance seem to be screwing it up more every day IMO . This old gig is up. Welcome to the end of how one understands our ponzi financial system . Welcome to the beginning of a new way to look at housing, the economy, personal wants and needs, and what's important to us, and to our loved ones. Life's going to change,.. but for the better. OK maybe not for the people who seem to be holding on to this flawed belief tightly with both hands. IMO There is no recovery from this back to normal , just change, This is The New Normal, we are all moving to a better ,more engaged, less materialistic world. And I believe it's going to be a much better place then what I've seen over the last 10 years. some will refuse to see it. some will embrace it. some don't care. just don't sell me the it's getting better or back to Normal BS. it never will this is it.
Welcome to the New Normal. I love it!

Troy says

This does, though:
http://research.stlouisfed.org/fred2/series/MORTG/

Interest rates fell from 1989 to mid 90s and so did home prices.

thomas.wong1986 says

Prop 13 is only an issue with Liberals and Unions. In the long run it has never been a factor.

Prop 13/58 is in fact an issue in areas with supply/demand imbalance and little new growth, since it keeps old supply off the market with their favorable tax bases as rentals.

If I inherited a $1M house in 95014 I'd rent it out. Talk about free money.

http://www.zillow.com/homedetails/20627-Sunrise-Dr-Cupertino-CA-95014/19634830_zpid/

shows a house paying $1300/yr in taxes. Rent is what, $4000? That's only a 4% cap rate but free money is free money.

thomas.wong1986 says

Interest rates fell from 1989 to mid 90s and so did home prices.

Same thing now, yes. There was a drawback from a bubble, and the larger macro picture was depressing prices.

We're largely done with the drawdown from 2005 highs. I think there's still more blood to flow but that's only because I'm highly negative about the future of the middle class in this country.

If we had sensible Clinton-style tax policies on tap there might be a way to rebuild from here, but I think we're going to find ourselves flushed down the bowl with our dysfunctional political/media/social three-ring circus.

My larger point was simply that 4.25% 30 year fixed FHA loans are a pretty damn good price support, ceteris paribus.

Troy says

Prop 13/58 is in fact an issue in areas with supply/demand imbalance and little new growth, since it keeps old supply off the market with their favorable tax bases as rentals.

And so we have seen a HUGE BOOM in construction and new supply hit the market. Constraints on supply were from local anti-growth ordinances by cities and town imposed back in late 70s/early 80. But that has been removed long ago.

Troy says

My larger point was simply that 4.25% 30 year fixed FHA loans are a pretty damn good price support, ceteris paribus.

Current state of economy and banks negate that completely.

I dunno. I think that's an impossible thing to guess. The answer is probably going to be dependent on where you live. The Midwest and parts of the rust belt will probably continue to have lackluster growth and perhaps more declines since the core industries in that region have been in decline. The Northeast will also probably see some declines but might remain more flattish. The Southeast and Texas will probably see the healthiest growth- both in terms of economic and infrastructural growth, and will continue their march towards becoming bastions of the middle class. The prices there will probably do as they've always done- which is to grow slow but steady. I dislike the idea of investing in real estate since stocks are by far a much better way to go. But if I were to- the Southeast would be the best bet.

California and particularly the Bay Area and LA are hard to figure out. The Bay Area in particular tends to inflate lots of economic bubbles which in turn creates housing bubbles. Will something like that happen here again? Dunno.

A Timeline? Again- who knows?

I don't see any upward pressure on house prices. Real Estate does not exist in a vacuum. The greater economic pressures we are facing. The debt crisis did not go away in 2008. There are simply fewer, bigger, banks that are too big to fail out there. Sooner or later the system will fail.

So in my mind at least the best case we can hope for is a 50% drop in prices from the peak in 2006 then a slow climb out while houses grow at boring more historical rates of appreciation.

Middle course is we follow Japan and endure a decades long slide while we refuse to fix the financial system.

Worst case is a complete collapse of money and credit and we end up in a depression worse than the 30's which would make houses simply crater.

Will the Bay Area hold up? Hmm...I dunnno...i'm really starting to worry this isn't the place for jobs. Ten years after the dot com collapse there are still lots of empty office buildings and there is too much pressure to send jobs to India & China.

StoutFiles says

I can’t see prices drop for another 5 years…there is a point where the economy would fall apart completely and a 5 year drop really pushes that. 2 years max.

I wouldn't place real estate as the center of our economy. With the exception of the bubble, real estate was never the poster boy of economic growth. The housing sector could tank for years while other sectors thrive. In fact, the more affordable housing is, the more disposable income people have to spend on cars, restaurants, electronics, entertainment, and all other discretionary spending. Although the NAR would like the public to believe the economy will never recover without housing returning to bubble prices, this simply is not true.

This site is sounding more and more to be full of people rooting for Armageddon or America to become a 3rd world country.... If home prices drop 50% from current levels and we enter a depression... Do you really think renters and those that collect gold coins in their parents basements will rule the world? If things really got as bad as some are claiming... Who would be able to enforce all homeowners and renters from just stopping paying their mortgages or rent en masse... And bringing our entire financial system to collapse. If credit really froze up... Who cares about ur credit score!?

Like a game of musical chairs... When the music stops... Whatever home you are sitting in is yours free and clear!

Los Angeles Renter says

This site is sounding more and more to be full of people rooting for Armageddon or America to become a 3rd world country

Top economists such as Peter Schiff and Robert Kiyosaki said it is highly possible because of our monetary policy. They have been right for many years.

Los Angeles Renter says

This site is sounding more and more to be full of people rooting for Armageddon or America to become a 3rd world country…. If home prices drop 50% from current levels and we enter a depression… Do you really think renters and those that collect gold coins in their parents basements will rule the world? If things really got as bad as some are claiming… Who would be able to enforce all homeowners and renters from just stopping paying their mortgages or rent en masse… And bringing our entire financial system to collapse. If credit really froze up… Who cares about ur credit score!?
Like a game of musical chairs… When the music stops… Whatever home you are sitting in is yours free and clear!

you don't realize how close we were to a global financial collapse in 2008/2009. if that were to happen we would be in another great depression.

I'm amazed by folks expecting a financial/economic collapse (civil war, coup d'etat, etc.) in USA AND the (nominal) RE prices to drop. If that happens, that would be the first such collapse in world history.
In all previous collapses in any other country that I know (and I unfortunately lived through one in the USSR and studied a few others), RE was by far the BEST investment/hedge. What would you rather own - a bunch of worthless Soviet rubles? What would you rather have in German collapse - reichsmarks counted in millions and then billions for a loaf of bread? Or in Argentinian collapse - pesos that were devalued 4 times overnight, lost convertibility, and were locked up in banks for a long time save for small withdrawals. The US history has been woefully short on collapses so far (which is why most Americans have scant idea as to their typical ways), but, when the Confederacy went down, would you rather own an Antebellum mansion or a bunch of Confederate currency and bonds?

Don't bring up Japan here. That hasn't been a collapse at all, but orderly deflation within an exceptionally stable, well-managed, and controlled society. If a collapse happens, the financial system and currency would go first, meaning that the price of real assets (first of all, RE) would skyrocket.

Fisk says

In all previous collapses in any other country that I know (and I unfortunately lived through one in the USSR and studied a few others), RE was by far the BEST investment/hedge

load up on US RE and let me know how it went in a few yrs =)

HousingBoom says

Top economists such as Peter Schiff and Robert Kiyosaki said it is highly possible because of our monetary policy. They have been right for many years.

All im saying is if we do get a financial collapse.... Then those that bought real estate now or in 2005.... It wont really matter. It would be like hitting the reset button... Game over... Just because you are renting with a hundred grand in the bank isnt gonna mean you are gonna be any better off than the guy next door with $500k loan on and underwater home...

HousingBoom says

Fisk says

In all previous collapses in any other country that I know (and I unfortunately lived through one in the USSR and studied a few others), RE was by far the BEST investment/hedge

load up on US RE and let me know how it went in a few yrs =)

I did buy a house and intend to buy one or two more within the next several years. All cash, not leveraged, so can wait.
But I do NOT actually expect a collapse - just rather high inflation
for some number of years. What amazes me are those who DO expect collapse and run away from RE. To where - currency and bonds of collapsing government?

Fisk says

But I do NOT actually expect a collapse - just rather high inflation

Everyone has their opinion. Only time will tell!

I wasn't asking you quack quack

Yeah, I keep hearing that not all areas are the same. I think the trickle down affect is inevitable. Everything from QE3... to the scandals that consistently plague us, despite the lack of reporting on both the Left and Right media owned fronts. We're ultimately screwed.

The banks are swimming against a powerful reverse current that they created. I think everyone should just walk from their mortgages. The banks need to be taught a lesson once and for all. We are not going to allow them to have their one world ruler nor will they ever own us.

So long as our economy continues to tank and I would be watching Greece, we will continue to have an unstable housing industry that will continue to fall. If we crash, which is where it looks like it's going and at Godspeed, well, the housing industry will be decimated more then it is already.

I keep reading the good and comparing them against the bad and the bad is far more prevalent then the good. We're going down, down, down and the banks have done it to us again and again. The media continues to use Madoff as the patsy while the other bastards are getting away with murder. I can't wait for them all to go to jail for a long, long time.

It's only a matter of time, before the people rise against the propaganda and corruption and then the Elites are in store for a revolution that will hunt them and their families down.

I've come to understand that reports are skewed by purchased opinions.
-QE3 being used.
-More money is printed then is backed and China owns us
-Obama is starting WW3
-Billions and billions of dollars remain unaccounted for.
-Bansters / G20 elites... continue to call the shots and have the printing press to all the get out of jail cards.
-The media keeps covering up the facts and instead reports lies
-Hyper Inflation is around the corner
-Interest rates are supposed to go up
-Oil is killing us and will continue to do so
-Nobody is getting adequate raises to offset the inflation, so more goes out then comes in against fixed incomes, especially for those with SS
-Obama admits that there just weren't enough Shovel Ready jobs.
-Unemployment is going up again.
-Dot to dot to dot and it spells disaster. The proof is in the taste of the pudding and right now the recipe is for a disaster.

--Oh, THE SHADOW INVENTORY IS STILL IMMENSE AND GROWING EXPONENTIALLY.

You guys can believe all the charts that you want. They're bought and paid for by someone. While there is truth in them, there is more skewed disinformation then anything.

AUDIT THE FED, THEN ABOLISH THE FED/CORRUPT BANKSTERS
RON PAUL 2012.

I am up in Vancouver, Canada and have been watching the U.S. train wreck for over 30 years. We are not much better in Canada and I predict a huge housing collapse here in the very near future. We are just a little behind as we have done a slightly better job of not screwing up.

I think the U.S. market will continue to go down for at least 5 years and will take 20 to 50 years to recover. We must not forget that the U.S. has been living far beyond its means for decades. I think if America was to live within its means the standard of living would be slightly higher then Mexico. America has gutted its manufacturing sector. After world war 2 approx. 40% of the workforce were employed in manufacturing. At present it is 9-10%. As real jobs that create real wealth were shipped overseas the country ramped up its borrowing to create the illusion of wealth. The great unknown is when America finally has to face reality how bad is the economy. Only after that day of reckoning arrives can the economy and real estate start to heal. Politicians being the con men and idiots they are that day will be posponed as far as possible.

Los Angeles Renter says

Like a game of musical chairs… When the music stops… Whatever home you are sitting in is yours free and clear!

very true.

I completely agree with you solver. The Elite have gamed the system and I think the logical outcome is a good old fashioned French style revolution. They are all narcissistic and living in a dillusional world suspended from reality. They have no clue what they have done and what is going to happen.

I feel sorry for all those who bought prematurely. They bought based on the corrupt media outlets who declared a single short recession. That should have taught us a lesson, but, apparently it didn't. Imagine if you went out and bought a place that dropped 50%, but has the potential of dropping another 25%. I can't imagine that to many people are going to be to stoked over the idea that they are losing their investment.

These guys are running a diabolical campaign and the Sheeple just keep grazing where they're taken.

There's a couple knuckleheads with high power cards out there who are orchestrating a pretty nasty situation.

Imagine this. We keep trying to play catch-up. They know that we're Sheeple and that we do not question anything that is printed.
What if they have intentionally set us up for failure, only to be praised? Like what the banks are doing to Greece. Break them, then bail them out and OWN THEM.

Word is that the Inland Empire and cities on the outskirts are in for one hell of a ride this year and the next. This is in part attributed to gas. People can no longer afford to work to far from their homes. GAS IS ULTIMATELY SUPPOSED TO RISE.

Mecca is Los Angeles and mainly because of Down Town and the studios. If you live far from LA, well your value is coming down. The writing is on the wall. If you live in the far out regions and commute inward to mecca, you're screwed. Your savings will be continuously depleted while they banksters and oil barons get richer and impoverish us. THEN THEY OWN OUR SOULS AND NOT JUST OUR BODIES.

There are always exceptions, but this is the general outlook that has been presented to me by numerous people. Oh, what goes down, does ultimately come up. So, I'm sure that who ever buys on the low will ultimately prosper.

The big question is: HOW LOW IS LOW AND WHEN WILL WE SEE LIGHT? If you don't see light now, are you willing to ride out the losses?

I've been watching quite a few flips that have gone South for the owners. Watch out, because this is not a flippers market, unless it's acquired for 15 to 25 % of what the current DEPRECIATING market is. Those numbers allow for some investment to correct the wrongs and for some return. It also allows for some more depreciation too.

I know this all sounds crazy, but some of you should seriously take the pill that NEO took in the "Matrix". I've been listening to Alex Jones as well as some of the other Left and Right good guys and it's been enlightening on a whole different level. www.infowars.com It's free to listen to, and it's been the most informing media outlet that I've ever tuned into. What I respect most about him is that Mr. Jones is fighting for FREEDOM as it is defined in our Constitution. We're being taken over and it's crazy, because it's being done covertly, yet right under our noses.

Anyway, Mr. Jones has a pretty wide host of professionals some of who he agrees with and some who he disagrees with. It's about the fairest reporting site I've found. Oh, Drudge Report does a really good job too and apparently, many of the media outlets, if not all of them take their reports from him.

So, in the end, I would say that you should do your own math. The signs are the dots on the paper. To me it looks like there is no bottom in sight. The bottom is so low that they're afraid to publicly declare it, for fear that the problem they created will snowball at a Godspeed rate.

Coming down and congress, the banksters and all those on the take are responsible. Why do they get to get away with murder and we get the book thrown at us. Why is Weiner only getting a slap on the hand?

Why are we in Libya? Why is congress taking up against Obama for his illegal "KINETIC ACTION"? Things are happening for a reason that benefits the few at our expense.

I also heard that Apples new CLOUD network gives them the right to keep your information. Better read the fine print, because the details define the service.

The collusion is very deep and the housing market is on the same page of everything else.

Bottom coming within the next 2 years and it will plateau for the next 5 to 10 because of all the corruption. We have nobody to blame, but ourselves. We voted the crooks into office and they've screwed us over and over again.

Ron Paul. I challenge anyone to find anything bad about what he's trying to do. He's also not on the G20 Bilderberger's list of attendees either.

HousingBoom says

Top economists such as Peter Schiff and Robert Kiyosaki said it is highly possible because of our monetary policy.

Robert Kiyosaki??? Are you kidding me???

I certainly agree with Peter Schiff's economic forecast. It could come true unless we do something drastic.

Housing will bottom in November, 2012, assuming we get a new presdient. We will continue to lose about 1% per month between now and that election.

Housing will improve (appreciate) once the Republicans gain a filibuster proof majority in the Senate, while controlling both the House and the White House.

Duh!

klarek says

That was the general premise behind this book

Isn't that working against law of gravity?

I think we all keep trying to assign some type of normal logic to this. If you want to find a nut, you must send a nut to find one. Only a nut thinks like a nut.

We have to look at this whole thing from the perspective of why those in power are doing this to us. It obviously makes no sense from a normal logical point of view to continue to print money with nothing to back it.

I'm starting to think that the idea really is to bankrupt the middle class for control purposes. Why will prices keep falling? Maybe the power elites are really out to break the system so that they can reinvent it with new standards and a greater sense of control.

Was watching Money Masters (the full length version) on You Tube the other night and it really lends quite a bit of insight into the whole power structure of the world.

I think that there are simple explanations to it all. We just don't want to see the handwriting on the wall.

solver says

It obviously makes no sense from a normal logical point of view to continue to print money with nothing to back it.

It makes all kinds of sense actually. What don't you get?

Coogan99 says

Unnatural demand perverted prices. Prices (and rents) will return to levels consistent with incomes. We aren’t even close.

I'd agree if this was 2006, but we're 5 years later. Prices are at levels consistent with incomes in the vast majority of markets.

Saying we're not even close is just dumb.

It stands to reason that home builders made more money than they deserved during the bubble. As demand and prices exploded, supply of material & labor was short, driving up construction costs. As soon as demand dried up, there was excess capacity for materials & an excess of people skilled in construction. So, one would expect that building costs would decrease relative to prices of other things. Due to global supply chains, the popping of housing bubbles in Canada, China, and Australia may also help to lower materials costs. Also, people can life in smaller places or double up if needed.