I read a headline that said home prices could return to 2001 level. I would find that to unlikely but possible for a brief period of time. I have seen a lot of flexibility out there and appraisals getting tougher.
The last five years have been similar to me hitting a slick spot in the road when I was 16 years-old. I quickly oversteered right. Then I had to steer to the left to compensate for oversteering. I did this back and forth about five times before the car was going straight.
The easy money of the last 4 years allowed prices to go up 25% but only cost 5% more to the consumer. As a nation we only care about how much it costs us monthly which is why prices went up. Low interest rates and subprime teasers were the main culprits. As the rates went up and subprime went away the appreciation cost much more than 5% more.
As I say often, the true price is when a willing buyer and and willing seller agree. The unspoken caveat is when one side is desperate a la 2005 and 2006 for buyers or late 2007 and 2008 for sellers. Just as sellers made a killing in those times with multiple offers and buyers begged it has completely reversed. Beyond that a percentage of the willing sellers don’t have the final say, the bank does.
On just the principal of supply and demand I can see prices going down, even here. Desperate sellers and banks wanting to liquidate like they are selling HD-DVD players will obviously push prices down until buyers catch up with the inventory. Actually in 2005 it was reported that 40% of homes were purchased by investors. Another less reported story is that a lot of foreclosures are secondary homes.
So the market may well oversteer down but I think the prices won’t lose more than early 2005 prices if we lose anything. We are still the least expensive city on the west coast and drawing in buyers from more expensive markets.
