Thanks to alert reader “Rido,” we identified the bottom of the market a couple of months ago. Actually, it was Jim Cramer who nailed it.
A good benchmark to use: Wait until things revert back to 2000 prices, which I think will be sometime in March 2008.
But today, Mad-Jim has apparently moved up the schedule, which means we may have to rethink our own scheduled American Home Buying Day. March is coming early.
Wrote Tom Brennan, due in large part to the recent Fed rate cut, Cramer is “so confident in the economy he’s considering buying what might be ‘the most loathed and toxic investment around’: a house.”
But don’t believe me; watch the video.
(Note: No surprise - I just noticed that my blog buddy, Jim the Realtor at bubbleinfo, got to this first. Does that guy ever sleep?)
{ 11 comments… read them below or add one }
Phil Hoover
01.31.08 at 9:07 pm
Kris ~
Your date is a little later than mine:
http://www.boiseblog.com/journal/2007/12/12/boise-real-estate-bottom-now-scheduled.html
Dave
02.01.08 at 2:11 am
Prices will be back to 2000 levels in March 2008? In what country? I’d like someone to show me ONE area in San Diego where the majority of sales are occurring at 2000 levels. Don’t waste your time - it doesn’t exist. By and large, we’re back to 2003-2004 prices in most areas. I think we’re headed to 2001-2002 prices over the next couple of years - that’s a good 15%-20% from here. Cramer is such a clown. He can’t even do math.
Kris Berg
02.01.08 at 6:37 am
Dave,
That is correct - We are back to approximately March, 2003 pricing in most areas, with Summer of 2005 representing the peak. To roll back to 2000 pricing would take another approximate 50% value decline - Not happening. Even though he is talking National averages, he is still wrong.
Kaye Thomas
02.02.08 at 9:23 am
Kris,
There are pockets that will revert to significantly lower prices however you more affluent areas are not seeing big price reductions. Most are holding steady or seeing increases for prime properties in premium locations.
Dave
02.02.08 at 4:21 pm
O.K., good, I’m not crazy (about 2000 pricing comment at least). FWIW, I think the median price/sq.ft. for SD County will ultimately settle in at 35%-40% below the peak. Right now we’re down about 20%. So I think we’re in for a further decline in the median of similar magnitude to what we’ve seen already over the next few years. But I think the vast majority of the remaining decline will come in 2008 and 2009 before bouncing along the bottom for a few years (who knows how many). Sure, there will be some areas like South San Diego that will decline by 50% peak-to-trough and other areas like RSF and La Jolla that will only decline by 15%-20%. But that median price/sq.ft. is going to mean revert to a point for the typical home where (1) mortgage payments under conventional financing are a modest premium relative to rents, and (2) mortgage payments are roughly back in line with historical ratios of median incomes in the county. Every bubble ever studied on the planet has mean reverted over time except for the current US real estate market - and it will do so in due time.
There’s a piece over on Calculated Risk that mentions that 51% of all sales in SD County for January were either short sales or REO sales and that the percentage is climbing. This condition is unprecedented in the annals of the SD real estate market. How anyone can believe that we are not in for considerable further pricing declines across the board is absolutely beyond me.
Dave
02.03.08 at 2:32 pm
By the way, what are the Bergs’ predictions regarding further price declines (or increases)? I’ll make this simple. Rather than asking your opinion on when the bottom will occur (impossible to predict) or how much further from here prices will ultimately fall (also impossible to predict), I’ll just ask the following: Where do you think the SD County median price/sq.ft. will be at the end of ‘09 as compared to today? (That is, what will be the percentage increase or decline between today and the end of ‘09?) I’m not suggesting that this is an easy prediction to make either (it isn’t), but I’m curious - as you’re professionals, after all, and thus should have an opinion on such matters - as to what your thoughts are. As I stated above, I think we’ll be down another 15%-20%, or thereabouts. What are your guesstimates?
Kris Berg
02.03.08 at 8:23 pm
Dave,
I guess you aren’t watching the Super Bowl?
Absent the fine-tuned skills of Nostradamus, I can’t say with certainty, but another 15% doesn’t sound implausible. Kaye is right about pockets being less affected. I think you are off on La Jolla - I have been showing quite a bit there over the past six months, and I will tell you that their prices are holding pretty tight. You aren’t seeing the REO’s and shorts in that area (coastal in general) that you are in other areas of the county, which are clearly having some real impacts on pricing in some markets.
I absolutely agree with your “bouncing along the bottom” prediction once things settle down. The reverse trend will be slower and steadier this time around.
One thing I will say is that the activity among buyers seems to be picking up, and our inventory remains pretty low, so these are good signs that all-out carnage is not in the cards. I apologize if this is too wishy-washy an answer, but I am pretty steadfast in my opinion that 2008 and some of 2009 will be a continuation of downward pricing pressure.
Now, off to my pre-game mozzarella sticks. Yum!
Dave
02.04.08 at 10:56 am
Umm… I’m not sure which Super Bowl you watched. I watched the NFL Super Bowl between the Giants and the Patriots. The one that started at 3:30 PT… an hour after my last post… but I digress… (The Giants won, btw… thank the fates.)
As I stated previously I also think the high end will continue to hold up better than the low end, but I think it’s still in for a mini-beating. The data I’m seeing suggests that even the median high end coastal property is down from the peak in the high single digit percentages on a price/sq.ft. basis. I see that doubling over the next couple of years. Much better than the low end. But not exactly the “the high end won’t decline” mantra that I hear a lot of people spouting off about. Everything goes down in these post-bubble retrenchments - it’s just a matter of degree.
Your answer wasn’t wishy washy. It was uncharacteristically semi-bearish… particularly for a real estate agent.
Kris Berg
02.04.08 at 11:10 am
>The one that started at 3:30 PT…
Yes, smartie, but you were in danger of missing the pregame show which, I believe, started on Friday.
By the way, great game at the end, and I was happy to see the Giants win, even though Mr. Manning is a Charger-hater.
I will take the bearish remark as a compliment. Hopefully, if nothing else, we have a record of being honest and without propaganda here. By the way, I always enjoy your comments. You understand the market better than many agents I know.
Rational expectations
02.04.08 at 3:01 pm
Hey coolaid woman!…
Since you have called the bottom today and are obviously more optimistic than I am about price trends, I tell you what I will do. Sell me a futures contract for a house. I will sign today, but pay in Feb 2010. You can hold the deed until then and I will pay you the market price at the later date and rent in the mean time. If you are right that this is the bottom, then you will make money on the deal (rent plus cap. gains). If I am right that prices are PLUMMETING and that you are hallucinating in a very public way on the internet, I will make money.
If you believe what you are saying, then why not profit from it? If you are (in effect) lying to sell a product, well then welcome to sales, but don’t expect anyone but a fool to believe you.
Rational expectations
Kris Berg
02.04.08 at 3:42 pm
RE - Well… First of all, your plan is predicated on the assumption that I have a house (which I own) to sell, which I do not. I like the house I own now and plan on keeping it, but thank you for the offer.
More importantly, and forgetting that your comment is confrontational and borderline hateful, if you reread this post, you will see that NOWHERE did I say we have found the bottom. Au contrare, if you go on to read the comments, I confess my opinion (which is just that - an opinion) that we still have a way to go.
Your comments are always welcome here and even appreciated so long as they are constructive and meaningful. To accuse me of “lying to sell a product” and of “hallucinating in a very public way” is neither.
I have always respected your right to your opinion here. Unless you can extend me the same courtesy, I will moderate.