San Diego: Crash index lowest since 1982

The Campbell Real Estate Timing Letter is written by the very knowledgeable Robert Campbell (858-481 3235). This is a very unusual real estate report since Campbell uses both a technical approach and well-researched fundamentals.

Robert really covers the San Diego area, but what he says about San Diego applies to all of Southern California. His "Real Estate Crash Index" is now down to a minus 60 reading, the lowest reading since his data was first made available back in 1982. The following areas are now deteriorating in San Diego -- existing home sales, new home building permits, notices of defaults, and foreclosure sales.

Campbell states, "The housing decline is in its early stages. Due to its powerful downward momentum, the decline is nowhere near its end." Campbell shows how and why this has been the biggest housing bubble in US post-war history, the bubble buildup extending from 1990 through to the present.

It's obvious that the stock market, so far, is not taking the bursting of the housing bubble seriously. And neither is the Fed. In fact, various Fed governors are still fretting about inflation and warning that higher interest rates may be needed to forestall inflation. My own take on the Fed is that there is slight to zero chance that the Fed will raise rates any further than the current 5.25%. The reason -- the Fed wants to avoid any further pressure on the deteriorating housing situation.

Home prices have not backed off very far except in isolated instances. What has happened is that bids have dried up. If you are serious about selling a house, you have to price that house about 25% under the prevailing market in your area. But in general, sellers are standing their ground and potential buyers are waiting -- and holding back on bids. It's a standoff with neither side conceding -- yet.